With the limited financing options available to NZ citizens (especially those comme moi who aren't planning to return to work in NZ), I've really had to evaluate my assets in the last weeks to figure out what the best funding cocktail would be for me.
I'm somewhat lucky in that I do own a house which has gone up in value by a good amount in the last couple of years. This means I've been able to use the refinancing option as my main funding source. Mortgage rates have dropped since I last fixed the mortgage so refinancing works in my favour as well, though it does mean I'll have a several thousand dollar break fee to pay.
For the non-finance inclined, how refinancing works is that you move your mortgage over to another bank with different (usually better) interest rates. During the move, as a new contract is being signed with a new bank, you can take out a larger mortgage than your previous one, thereby cashing out some of the equity in the property, assuming your property value has gone up. In this way, people have been able to leverage on their existing property to borrow cash for renovations, travel, buying investments, a second property....or an MBA :)
You don't necessarily have to move banks. You could refinance with the same bank, which in NZ is known as a top up loan. Refinancing with the same bank usually saves you some of the admin costs and hassles, and is definitely a route to be investigated unless the other bank offers a far more attractive deal, or your existing bank denies your request for a top up.
I'd like to share a bit of my naivety here in dealing with banks and mortgages so that "too honest" people like myself get a heads up. I tried to top up my loan with my existing bank, Kiwibank, to avoid break fees initially but my application was denied. Why? Because when you ask your current bank for a top up, they're going to ask you why you need that money. So I told them truthfully it was to pay for school fees. Of course this lead to a further question on whether this was an overseas school or local, which lead to whether I was going to study full time, which lead to whether I was still going to have my job etc. You get the gist.
I was completely honest, but I told them I'd worked out a plan whereby renting out the house would cover all the mortgage payments and my investment dividends would cover maintenance costs like rates. It was perfectly reasonable and considering refinancing the house would still make the total mortgage less than 40% of the market value, it seemed a pretty save investment to me. I mean if I was looking at this loan as an investor, I'd jump on it since the risk is really very low and demand for a house in my area is very very high.
Anyway, enough of my rant.... To cut the long story short, Kiwibank said no and "we don't really do equity cash outs these days". So I've refinanced with ANZ at much better rates through a mortgage broker, taken the break cost hit, but overall ending up being better off. FYI if you're in NZ, Kiwibank doesn't deal with mortgage brokers so you'd need to know how to negotiate better rates with them yourself.
Of course, I'm not relying entirely on the loan. After all, a loan is still something I'd need to pay interest on. So my savings are sadly going to be depleted over the next year to finance my living costs in London....for the first year. The plan after is to use my summer internship to earn most of my second year's living expenses and potentially try and work in a second internship in my second year (something quite plausible I've heard). Rental income from the house and dividend income from investments will pay the mortgage and property maintenance costs in NZ.
So that's my financial plan for self funding my time at LBS. Hopefully it helps give some ideas on how to structure your financial plan. I've done a monthly cash flow forecast for the next 2 years and also have a backup measure for if I don't get a rental income - something I would advise doing. Leave a comment if you have any other ideas to add :)
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