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How long should you fix your mortgage for?

Managing a mortgage can feel like a big responsibility. It’s often the most significant debt that people have in their lives and one of the biggest payments they make each month.

But with so many options, how can you know the best way to structure it? Should you float, fix for a short term or lock it in for a longer haul? Are interest rates going to fall further, or should you lock in a rate now before they increase?

The bad news is that there’s no right answer that will suit everyone.

The good is that we can help you figure out what the right option is for you.

Most lenders let you lock in an interest rate for terms ranging from six months through to five years. There’s also the option of floating, where your loan interest rate changes according to shifts in the market.

Here are some things to think about before you decide.

What rate is being offered?

While no one has perfected the crystal ball method of interest rate predictions yet, you can compare what you’re being offered to what you think might be going to happen to rates from here.

At least for now, there’s little indication that rates are going to fall dramatically further, and they may start to creep up in time – although most people expect that not to happen quickly.

Most economists say at present that a series of one- or two-year fixes should provide a better rate overall, and a lower interest bill, than fixing for a longer term right now. Interest rates, they say, should still be low enough at the end of one of those terms. You could then re-fix at a rate that’s still more economical than paying a premium for a longer one now.

But that’s not the only consideration that matters.

What are your plans?

Most people opt to fix their mortgages because fixed rates are cheaper than floating.

But if you know you’re about to put your house on the market and might want to pay your mortgage off within the next couple of months, floating may be a better solution.

If you think your income might increase in the coming years, or you’re expecting to receive a lump sum of money, such as an inheritance, you might opt for a shorter term fix to allow you to put up your repayments, or pay off a chunk of your mortgage, without any penalty.

Want certainty of payment?

It’s not possible to accurately predict what might lie ahead. How comfortable you are with that will play a part in the term you choose to take.

Generally speaking, if you’re looking for certainty of payment, fixing for a longer period may be a good idea, especially while rates are at their current lows. But at the same time, you may not want to fix for too long – if rates were to go down further, you would be able to fix at a lower rate sooner; and if they went up, the increased payment would likely be lighter on your budget than if you fixed for longer.  

Whatever rate and term you choose, you need to be comfortable with your decision and understand your reasons for the decision.

Do you want to split it?

An option to get the best of both worlds could be to split your loan into several smaller amounts. This means you can fix some for a short time and some for longer, so that you never have the whole lot roll off a fixed term at once – even if rates have risen by the time the term expires, you aren’t fully exposed to that change.

Wondering what to do? Give us a call today. We can explain what’s on offer and how to structure your loans to get the right fit for your circumstances.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.

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Eleven things it’s worth spending money on

We usually focus on all the ways to save money, but the reality is, sometimes it’s worth splashing out. Here are eleven things that it’s worth spending your money on.

Your health

Skimping on things like doctor’s appointments and eye checks can be a false economy. Stay on top of your appointments so that you can tackle problems before they turn into serious or expensive issues.

Your retirement savings

You may regret any budgeting that removes your ability to save for retirement. You should at least contribute as much to your retirement savings account as your employer – and, if you’re in KiwiSaver, the Government – will match.

The money you put into retirement savings now will have years to compound and could grow to a much bigger nest egg when you get to the point where you need it.

Your car

You don’t need to buy a flash car, but if you opt for a cheap vehicle, make sure you factor in how much it’ll cost you to run. A cheap car might be easier on your savings account when you buy, it but can end up much more expensive over the long run. Also, if your car is starting to suck up a lot of money in maintenance costs, it might be time to look at upgrading.

Travel

Sometimes it’s worth spending a bit more to make travel run more smoothly. When you’re booking your flights, an eight-hour stopover in a random airport to save $200 might not seem so bad. In the moment, though, it’s a different story.

Shoes and clothes

“Fast fashion” is all the rage right now, with mass-produced inexpensive clothing piling up on retailer shelves. But sometimes, spending a bit more can be a better idea. If you spend twice as much for shoes that last three years than you would for a pair that last six months, you’ll come out better off. The same applies to things such as a great coat or suit.

Your mortgage

The more money you can put towards your mortgage now, the more money you can save over time. Increase your repayments to the highest level that fits in your budget – “future you” will thank you for it.

Dental care

It can be expensive but putting it off dental care can end up being even pricier. Get an annual dental check-up so you can get things sorted before they can become big ordeals.

Education

Upskilling, whether that’s with a degree for a first career, adding to skills you already have or picking up new ones for a change of direction, can really pay off by boosting your ability to earn money.

Make sure you choose education from reputable institutions that will land you a step closer to where you need to be – not just expensive courses for the sake of it.

Services that save time

It can seem like a luxury to pay someone to do your cleaning, gardening or home maintenance. But if it frees you up to do other income-earning work, you might end up better off.

If your hourly rate is greater than that charged by the people offering the service, you could benefit from outsourcing your tasks to others. Even if it’s not, you may decide that the boost to your lifestyle is worth the investment.

Work tools

Don’t scrimp on the tools you need to earn a living. If you rely on a laptop or camera, for example, ensure that you have reliable models that will deliver the results you need every time.

And of course, insurance

Money spent on the right level of the right insurance is money well spent. It can help you pay for expensive treatments and even take care of your loved ones when you’re not there to do it yourself.

If you’d like to make the most of your insurance spending and ensure you’re maximising value for money, please get in touch. We’ll be happy to walk you through your options.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.

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Three New Year’s resolutions for your mortgage

New year, new approach to your mortgage?

If you’re in a planning mood, you might be thinking about one of the most significant financial obligations in your life – your home loan. Here are a few New Year’s resolutions to consider making to really make a difference to your financial future in 2020.

Squeeze out a few extra dollars for repayments

Any extra money you can put on your home loan payments will save you money in interest over the term of your mortgage. It might not even seem worth worrying about, but even $20 extra a week should help you better off over time.

According to the Sorted calculator, a $500,000 mortgage at 4 per cent interest over 25 years will cost you about $610 a week in principal and interest payments, and include $291,165 in interest costs. If you increase your payments by $20 a week, you can reduce your interest bill by almost $20,000 over the life of the mortgage – and maybe more if your interest rate goes up in future.

Most lenders will allow some additional payments to a fixed-rate loan with no penalty. Of course, criteria vary from one lender to the other. If you’d like to know what your lender requires, please don’t hesitate to get in touch.

Schedule dates to check back in

It’s easy to set and forget your mortgage – especially when you have years of repayments to go. But that’s exactly why it’s important to keep your home loan top-of-mind.

Even small tweaks can have a big impact and shave years (and dollars) off your mortgage. So resolve to check in on it every six months or year, to ensure that you’re still blasting it away as fast as you can, and that you’re on track for your goals.

Understand your structure

If you’ve got one big chunk fixed on principal and interest over 30 years, you might want to resolve to think about better options.

There’s no one-size-fits-all for home loan structures, as it all depends on your circumstances. One popular structure, for example, is to split a loan up into smaller amounts, which can be fixed for different terms and spread out your exposure to different interest rates. Plus, property investors may want to choose to structure their mortgage so that they can get rid of the principal on their owner-occupied home more quickly than their investment property.

Whatever you choose to do, the key thing is to pay off your mortgage faster and reduce the overall interest you pay over time. We can help you find the right fit for your situation.

Need a hand?

As always, we are here to help and would love to get you on the right path for 2020. Please don’t hesitate to contact us if you have any questions.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.

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Should you pay off debt first or save for a deposit?

Looking to buy your first home? It’s important to make your mortgage application as competitive as possible.

Having the least amount of debt possible is a way to increase your borrowing capacity. But when you’re also saving for a deposit at the same time, paying off your debt can be challenging.

You may have left university with a student loan. Perhaps, you have taken out a car loan or incurred credit card debt. Whatever the case, you might find that debt is slowing your progress towards home ownership.

Why paying down your debt is important

The biggest hurdle for many first-time buyers is the deposit required to get in the door. And of course, any money that you divert into a loan reduces the total you can put towards that savings pot.

Plus, one of the big considerations for banks these days is serviceability – whether you have enough free cash each month to pay for everything that needs to be covered. Even a small amount of money committed to another loan can mean a big difference in how big a home loan you can service. For example, 10 per cent of your income going to your student loan could reduce the amount you can borrow by more than $100,000.

Being debt-free shows a bank that you have the commitment required to meet a target and the discipline to make repayments on time.

Lastly, owning a house is often more expensive than people expect. There’s all the stuff you might have planned for: rates, insurance, power, water… but then there are the things you don’t predict such as a hot water cylinder that stops working or your glass sliding door getting smashed by a falling picnic umbrella. If you keep as much of your income as possible free and disposable, you’ll be much more comfortable when unexpected emergencies hit.

Being debt-free: easier said than done?

Does paying off (or down) your debt feel like too high a mountain to climb? The important thing is to have a clear understanding of your financial situation, and identify the steps you need to take.

For example, it may not be feasible to repay all your debt in a short period of time, particularly if you have a big student loan. In this case, it’s a good idea to break down your strategy into manageable steps and make a plan to pay off debt at a pace that suits your budget.

If you’re making all your loan payments, and they’re clearly manageable, a bank may not consider it a huge risk for you to have a small amount of borrowing ticking over alongside your home loan. In any case, if you have debt, it’s always important to declare it. Hiding things from the bank is a big red flag on an application – and could result in you not being approved finance, even if you have affordability.

We can help you put your best foot forward

The property market is cyclical, with periods of booms, slow growth and declines. So keep an eye on where the property cycle is for the area you are choosing to invest in. When price growth is slowing, for example, first-home buyers have a bit of breathing space. But even so, they might pick up again at some point, so it makes sense to get in the door as quickly as possible – otherwise, you might find that your deposit target moves faster than you can keep up.

By paying down as much debt as possible and building a sizeable deposit, you can prepare your finances for this great purchase. And of course, we can help. Debt-free or not, if you’re wondering how to get application-ready, give us a call today. We can show you how to put your best foot forward.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek advice from a financial adviser. 

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Please book in your free 15-minute phone call to see if we can help you with your financial life.

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Five smart strategies to get mortgage-free faster

Your mortgage is probably one of the biggest financial commitments you’ll have in your life. And with significant interest costs accruing over time, it makes sense to get rid of it sooner rather than later.

There are a few ways to do this – none of which relies on a winning Lotto ticket.

Increase your repayments

One of the most common ways to get mortgage-free faster is just to increase the amount you pay each time you come off a fixed term. Many people assume that, because they could only afford to pay off a little bit more, there’s no point in doing so. But, in reality, even a small amount extra can make a big difference.

If you have a $400,000 mortgage on an interest rate of 5 per cent over a 25-year term, your minimum repayment will be $1079 a fortnight. But if you can increase the payment to $1180 on the same loan terms, you’ll be on track to pay off the mortgage in 21 years and two months, saving more than $52,000 in interest.

Keep payments the same when interest rates drop

You can make the most of falling interest rates by keeping your repayments at their previous level when you fix on a cheaper deal.

For example, if you had a $500,000 mortgage at a 5.5 per cent interest rate, you’d pay $1416 a fortnight over 25 years. But if you refixed on 4 per cent and kept your payments the same, you’d pay off your loan four years faster.

This is usually a pain-free option, as you already had that level of repayment in your budget, anyway.

Switch from monthly to fortnightly repayments

If you are currently repaying your mortgage on a monthly basis, consider cutting those payments in half and paying them fortnightly (especially if you receive your salary on a fortnightly basis).

There are 26 fortnights in a year, so you could essentially squeeze in the equivalent of one extra monthly payment every year. For example, if your monthly repayments are $2,000, each year you will pay $24,000 (12 times $2,000). But if you split your monthly payment in half and made a fortnightly payment of $1,000, you would pay $26,000 (26 times $1,000) every year.

Pay off a lump sum

Making lump-sum payments can be another good way to pay off your mortgage faster and reduce your overall interest costs. To give you an example, if you make an extra $10,000 payment, after three years, on a $300,000 mortgage, you can save almost $20,000 over the life of your mortgage on current interest rates – and even more if rates rise in the future.

Of course, this option is pretty straightforward if you have a floating rate mortgage. But if you have a fixed-rate home loan, keep in mind that there could be a break cost if you pay back all or part of your fixed-rate mortgage during a fixed period. All lenders have different criteria, so please get in touch to find out what your lender will allow you to pay extra on a fixed rate, without penalties.

Use a revolving credit

If you are very disciplined and a good budgeter, you can also consider using a revolving credit facility to minimise your interest bill.

Generally speaking, a portion of your home loan will be set up a bit like a large overdraft. All your income then goes into that each month, reducing the amount of debt on which interest accrues. At the end of the month, you pay your bills from the account.

However, the convenience of revolving credit doesn’t always outweigh its disadvantages. As mortgage advisers, we can help you understand if this strategy is right for you, and if that’s the case, how to set it up.

Contact us at all times

Like to take a closer look at your mortgage structure? Please don’t hesitate to contact us. We’ll be happy to answer all of your questions and work with you on a strategy to get mortgage-free faster.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek advice from a financial adviser. 

Schedule your free
15-minute phone call

Please book in your free 15-minute phone call to see if we can help you with your financial life.

Choose your time