How the numbers work: loans and debt

Understanding DSR Formula

1. DSR = Net Operating Income (NOI) ÷ Annual Debt Service
2. Where:
3. NOI = Gross Rent - Operating Expenses
4. Annual Debt Service = All debt payments (mortgage, principal + interest)

Net Operating Income (NOI) Calculation

1. Gross rental income (weekly rent × 52)
2. Plus: parking fees, pet fees
3. Less: vacancy allowance (2-4 weeks typical)
4. = Effective Gross Income

Annual Debt Service Calculation

1. Mortgage principal repayments
2. Plus: mortgage interest payments
3. Plus: any other property-secured debt
4. = Total Annual Debt Service

Rental Yield and DSR Relationship

1. Gross Rental Yield = Annual Rent ÷ Property Value × 100
2. Example: $650/week rent on $600K property
3. Annual rent: $650 × 52 = $33,800
4. Yield: $33,800 ÷ $600,000 × 100 = 5.63%

Example 1: Auckland Apartment - Negative Cashflow

1. Weekly rent: $580
2. Annual gross rent: $580 × 52 = $30,160
3. Less vacancy (3 weeks): -$1,740
4. Effective gross income: $28,420

Example 1: Auckland Apartment - Negative Cashflow

1. Rates: $2,800/year
2. Insurance: $1,200/year
3. Body corporate: $4,500/year
4. Property management (8%): $2,413/year
5. Maintenance (0.5% for apartment): $3,250/year
6. Total operating expenses: $14,163

Example 1: Auckland Apartment - Negative Cashflow

1. Effective gross income: $28,420
2. Less operating expenses: -$14,163

Net Operating Income (NOI): $14,257

Example 1: Auckland Apartment - Negative Cashflow

1. Monthly payment: $3,287
2. Annual debt service: $39,444

Example 2: Wellington House - Breakeven

1. Weekly rent: $750
2. Annual gross rent: $39,000
3. Less vacancy (2 weeks): -$1,500
4. Effective gross income: $37,500
5. Operating expenses:
6. Rates: $3,500, Insurance: $1,800, PM: $3,120
7. Maintenance (1%): $7,500
8. Total expenses: $15,920
9. NOI: $37,500 - $15,920 = $21,580

Example 3: Christchurch House - Positive Cashflow

1. Weekly rent: $600
2. Annual gross: $31,200
3. Less vacancy (2 weeks): -$1,200
4. Effective gross: $30,000
5. Operating expenses:
6. Rates: $2,800, Insurance: $1,500, PM: $2,496
7. Maintenance: $5,500
8. Total: $12,296
9. NOI: $30,000 - $12,296 = $17,704

Example 3: Christchurch House - Positive Cashflow

1. Annual debt service: $20,851
2. DSR = $17,704 ÷ $20,851 = 0.85
3. Still negative!

Example 4: Regional Property - Strong DSR

1. Weekly rent: $550
2. Annual gross: $28,600
3. Less vacancy: -$1,100
4. Effective gross: $27,500
5. Expenses: $9,500 total
6. NOI: $18,000

Example 4: Regional Property - Strong DSR

1. Annual debt service: $16,808
2. DSR = $18,000 ÷ $16,808

DSR = 1.07

Example 4: Regional Property - Strong DSR

1. Annual debt service: $15,607
2. DSR = $18,000 ÷ $15,607

DSR = 1.15

Example 5: Interest-Only vs Principal & Interest Impact

1. Annual debt service: $36,288
2. DSR = $24,000 ÷ $36,288 = 0.66
3. Negative cashflow: $12,288/year

Example 5: Interest-Only vs Principal & Interest Impact

1. Annual debt service: $31,200 (interest only)
2. DSR = $24,000 ÷ $31,200 = 0.77
3. Negative cashflow: $7,200/year

🌍 Real-World DSR Investment Stories

1. Gross rent: $31,200
2. Body corp: $5,200/year
3. Rates/insurance: $4,200/year
4. PM & maintenance: $4,100/year
5. NOI: $17,700
6. Debt service (6.5%): $43,507
7. DSR: 0.41

Top-up needed: $25,807/year ($496/week!)

🌍 Real-World DSR Investment Stories

1. Gross rent: $30,160
2. Operating expenses: $9,800
3. NOI: $20,360
4. Debt service: $18,586
5. DSR: 1.10

Positive cashflow: $1,774/year

1. $650K property, $520K loan (80%)
2. Rent: $600/week
3. NOI: $19,500
4. Debt service at 2.5%: $24,715
5. DSR: 0.79 (negative, but manageable)
6. Top-up: $5,215/year ($100/week)

1. Same property, same rent
2. NOI: $19,500 (unchanged)
3. Debt service at 6.5%: $39,291
4. DSR: 0.50

Top-up: $19,791/year ($380/week!)

The Right to a Refund on Junk Add-Ons

1. If you think you were sold a junk add-on:
2. 1. Complain in writing to the dealer or lender and ask for a refund or cancellation.
3. 2. If that fails, take it to their financial dispute resolution scheme (this is free). Every lender must belong to one, and their details must be in your disclosure documents.
4. 3. Report mis-selling of finance or add-ons to the Commerce Commission.

You can also seek a final decision through the Disputes Tribunal for smaller claims.

🔢 Worked NZ Examples

1. Amount borrowed: $20,000 over 60 months at 12% a year
2. Monthly repayment: about $444.89
3. Total repaid: $444.89 x 60 = $26,693.40

Total interest: $26,693.40 - $20,000 = $6,693.40

🔢 Worked NZ Examples

1. Amount borrowed: $20,000 over 60 months at 9% a year
2. Monthly repayment: about $415.17
3. Total repaid: $415.17 x 60 = $24,910.20

Total interest: $24,910.20 - $20,000 = $4,910.20

🔢 Worked NZ Examples

1. Monthly repayment: about $444.89
2. Nothing owing at the end

Total interest: $6,693.40

🔢 Worked NZ Examples

1. Monthly repayment: about $371.42 (about $73 a month lower)
2. Payments over 60 months: $371.42 x 60 = $22,285.20
3. Plus the balloon due at the end: $6,000
4. Total repaid: $22,285.20 + $6,000 = $28,285.20

Total interest: $28,285.20 - $20,000 = $8,285.20

1. Loan without add-ons: $20,000, about $444.89 a month, $26,693.40 total
2. Loan with $2,500 of add-ons: $22,500, about $500.50 a month
3. Total repaid on the bigger loan: $500.50 x 60 = $30,030.00
4. Extra paid because of the add-ons: $30,030.00 - $26,693.40 = $3,336.60

Of that, $2,500 is the add-on price and $836.60 is interest on it

1. Monthly repayment: about $477.45
2. Total repaid: $477.45 x 60 = $28,647.00

Total interest: $5,647.00

1. Monthly repayment: about $352.89
2. Total repaid: $352.89 x 60 = $21,173.40

Total interest: $4,173.40

🔢 Worked Examples

1. Monthly repayment: $667.33
2. Total of payments: $667.33 x 60 = $40,040
3. Lump sum at the end: $0

Total interest paid: $40,040 - $30,000 = $10,040

🔢 Worked Examples

1. Monthly repayment: $557.13
2. Total of payments: $557.13 x 60 = $33,428
3. Plus balloon at the end: $9,000
4. Total paid: $33,428 + $9,000 = $42,428

Total interest paid: $42,428 - $30,000 = $12,428

🔢 Worked Examples

1. Standard monthly (no balloon): $1,145.03
2. Balloon monthly: $790.00

Lower by $355.03 a month, but $15,050 is owed at the end

🔢 Worked Examples

1. If it is a genuine GFV deal, Priya can hand the car back for $15,050
2. If the car is only worth $13,000 and it is a plain balloon:
3. Negative equity: $15,050 - $13,000 = $2,050

She must cover that $2,050 gap to sell or trade the car

1. New monthly repayment: $303.25
2. Total of new payments: $303.25 x 36 = $10,917

Extra interest on the balloon alone: $10,917 - $9,000 = $1,917

1. Balloon loan instalments: $33,428
2. Refinance of the balloon: $10,917
3. Total paid: $33,428 + $10,917 = $44,345

That is about $4,305 more than the $40,040 standard loan, and it took 8 years, not 5

1. Monthly repayment: $444.38
2. Total of payments: $444.38 x 60 = $26,663

Total interest: $26,663 - $20,000 = $6,663

1. Monthly repayment: $358.56
2. Total of payments: $358.56 x 60 = $21,513
3. Plus balloon: $7,000
4. Total paid: $21,513 + $7,000 = $28,513

Total interest: $28,513 - $20,000 = $8,513

The term trap: same rate, double the interest

1. Option A: $10,000 at 15% over 3 years
2. Monthly payment: about $347
3. Total repaid: about $12,480
4. Total interest: about $2,480
5. Option B: $10,000 at 15% over 6 years
6. Monthly payment: about $211
7. Total repaid: about $15,225
8. Total interest: about $5,225

Same rate, but the 6 year term costs about $2,745 more in interest, more than double, for a payment that is only about $136 lower a month

🔢 Real-World Examples

1. Keep the current loan: $15,000 at 18% over 3 years
2. Monthly payment: about $542
3. Total interest: about $4,522
4. Consolidate: $15,000 at 12% over 5 years
5. Monthly payment: about $334
6. Total interest: about $5,020
7. Plus $250 establishment fee

The lower rate but longer term costs about $748 more overall, even though the payment drops by about $208 a month

🔢 Real-World Examples

1. Cards: $12,000 at 20% over 3 years
2. Monthly payment: about $446
3. Total interest: about $4,055
4. Consolidated: $12,000 at 13% over 3 years
5. Monthly payment: about $404
6. Total interest: about $2,558

Lower rate, same term: Sione saves about $1,500 in interest and closes the cards so the debt cannot rebuild

1. Clear it over 3 years at 20% (on the cards)
2. Total interest: about $6,760
3. Add to the mortgage at 6.5% over 25 years
4. Total interest if left the full term: about $20,500

The much lower rate costs about three times as much interest, because it is spread over 25 years, and the debt is now secured against her home

1. Red flag: a rate near the high-cost range and a big upfront fee
2. Red flag: the payment is unaffordable, so a responsible lender should not write it
3. Step 1: he calls MoneyTalks free on 0800 345 123
4. Step 2: a mentor reviews his budget and contacts his lenders

Because he has no assets and owes between $1,000 and $50,000, a No Asset Procedure is explored instead of an unaffordable loan

The residential care subsidy rules

1. In the 5 years before you apply: up to $8,500 of gifting a year is disregarded, a total of $42,500 across the five years.
2. Longer than 5 years before you apply: up to $27,000 a year is disregarded.
3. Gifts in recognition of care are capped at $42,500 when combined with other allowable gifting in the last 5 years.

Anything above the allowance is counted back in as though you still had it.

The residential care subsidy rules

1. A parent gifts $50,000.00 towards a child's house deposit.
2. Three years later they apply for the residential care subsidy, so the gift falls within the 5 year window.
3. Allowable that year: $8,500.00 .

Counted back into their assets: $50,000.00 − $8,500.00 = $41,500.00 , money they no longer have but are assessed as holding.

What a family loan agreement needs

1. Who and how much. Full names, the exact amount, the date it was advanced.
2. That it is a loan, in those words. Not "help", not "support".
3. Repayment terms. Even "repayable on demand" or "repayable on sale of the property" is a term. Silence is not.
4. Interest, or expressly none. An interest-free loan is fine; say so.
5. Signatures of everyone involved , including the recipient's partner where there is one.

That last point does most of the work. A partner who signed acknowledging a debt cannot later say they understood it as a gift.

Death, wills and fairness between children

1. Say so in the will. A clause recording advances already made, and whether they are to be deducted, removes the argument entirely.
2. Keep the loan document with the will so the executor finds it.
3. Update it when circumstances change , including when a loan is forgiven.

Forgiving a loan is itself a gift, on the date you forgive it, with the gifting consequences above.

Before you hand the money over

1. Decide which it is. Gift or loan. Not "we will see".
2. Write it down and sign it the same week. Backdating later is worthless and worse.
3. Include the partner. If there is a relationship, get their signature too.
4. Tell the mortgage broker if a property purchase is involved.
5. Assume you will not be repaid. If that would damage you, lend less.

Every one of these is easier before the money moves than after.

Who can apply

1. Affordability is assessed by Kiwibank in the ordinary way, on income and outgoings.
2. Security is assessed by Kainga Ora, and rests on the house plus your right to occupy.
3. Build requirements are set by Kainga Ora, because the house is the security and must hold its value.

All three, and the occupation right must cover the full loan term.

Infrastructure is the cost nobody budgets

1. Legal access to the site, which may not exist even where physical access does.
2. Power , and the cost of running a line if the nearest connection is distant.
3. Water , whether reticulated, bore or tank.
4. Wastewater , usually a septic or treatment system, which needs consent.

Price these before the house, not after.

A sensible order of operations

1. Talk to the trustees or owners first. Nothing proceeds without their agreement, and that conversation sets the timeline.
2. Start the occupation right early , through the Maori Land Court, because it gates everything downstream.
3. Price the infrastructure and apply for Te Puni Kokiri support in parallel.
4. Check the district plan for papakainga provisions and consent requirements.
5. Then approach Kiwibank for affordability and Kainga Ora for security and build requirements.

Most stalled projects stalled at step two, started too late.

Interest Only on What Is Drawn

1. After the first drawdown, interest is charged on that amount only
2. Each further stage adds to the drawn balance and the interest
3. Payments rise through the build as more is drawn
4. On completion, the loan becomes a normal repayment mortgage

A Simple Approach

1. 1. Understand the staged drawdown schedule
2. 2. Expect interest-only payments that grow through the build
3. 3. Budget for rent plus construction interest together
4. 4. Know whether your contract is fixed-price or cost-plus
5. 5. Hold a contingency for overruns and variations

Interest on the Overdrawn Amount

1. Interest applies to the overdrawn balance
2. The deeper and longer the overdraft, the more it costs
3. There may also be a facility fee for having the overdraft available
4. Unarranged overdrafts can add penalty fees on top

A Simple Plan

1. 1. If you might need one, arrange it in advance
2. 2. Treat the limit as borrowing, not income
3. 3. Use it briefly and clear it back to zero
4. 4. Build a small emergency fund to reduce the need
5. 5. If you live in it, review your budget and cheaper options

How the six year clock works

1. Start point 1: when the debt became owing. For most consumer debt this is when you defaulted, rather than when you first borrowed.
2. Start point 2: your last payment. Any payment towards the debt, of any size, resets the clock to that date.
3. Start point 3: your last acknowledgement. Acknowledging the debt, in writing, resets the clock in the same way.

Six years runs from whichever of these happened most recently.

If a collector contacts you about an old debt

1. 1. Do not confirm or deny that you owe it in that first conversation.
2. 2. Ask, in writing, for the original creditor, the default date, the date of your last payment, and how the balance was calculated.
3. 3. Work out whether six years have passed since the later of the default and your last payment or acknowledgement.
4. 4. Get free advice before paying anything or agreeing to anything, because either can restart the clock.

If court papers arrive at any stage, respond to them. Do not rely on the debt being old.

Do the Simple Maths

1. Estimate the rewards value you would earn in a year
2. Subtract the annual fee
3. If you ever carry a balance, subtract the interest too
4. If the result is positive and you pay in full, it can be worth it

The Effect on Your Credit Record

1. A debt goes unpaid and is passed to collection
2. A default may be recorded on your credit report
3. The default can remain for years
4. Future lenders see it, making borrowing harder