1. Don't ignore your mortgage and figure 'she'll be right'
Interest costs on mortgages are a large cost, and if you can manage your financial planning so that you pay less interest over the life of a mortgage, your financial situation will gain a big benefit. You should be aware of how your mortgage is set up, what your mortgage interest rates are, whether you are getting a 'carded' rate, or a better deal.
Your mortgage is likely to be your largest financial commitment for a big part of your right. It is important to get it right.
2. Get good advice and work with an experienced financial professional to structure your mortgage right.
This is not a one off process. Working with a financial planner and mortgage broker during your life has the potential to save you a lot of interest, and make sure that you are more able to achieve your financial goals.
3. The quicker you can repay your mortgage, the less interest you are going to pay.
If you are paid weekly or fortnightly, it is worth looking at the option of matching your mortgage repayments to when you receive your income. The quicker your money is paid off the mortgage, the less interest you are going to pay. This could save you thousands of dollars in interest over time.
4. Revolving (or revolting) credit mortgages are not for everyone
While the lenders love them (as they tend to earn more in interest when people 'redraw'' the mortgages to buy more toys), from a financial planning perspective, there are only a handful of people who can operate a revolting credit mortgage successfully. You need to be highly disciplined and be prepared not to succumb to temptation to redraw that mortgage.
From experience, we have found that traditional floating and fixed rate mortgages with set repayments work best for many people in achieving their goals.
5. Structure any 'investment related' mortgages properly
This will involve more detailed financial advice and accounting advice. But it is important to ensure that any 'investment related' loans are set up so that the interest charged is tax deductible to you. It is easy to fall into a trap where this is not the case, and you don't want to be pinged by the IRD in future. It is worth investing in good advice at the start.
6. Just because the lender wants you to set up the mortgage term as 30 years, this doesn't mean it is best for you
Mortgage repayment terms have gradually increased from a standard 20 years, to now being 30 years. You need to work out what is going to work best for you - in line with your personal goals and objectives. Even if you do set up a 20 - 30 year mortgage, work out the best repayment schedule to achieve your goals.
Your repayment schedule might mean that your mortgage is repaid in 15 years, not the default 30 years. Again, working with a financial planner and mortgage broker will assist you in working this out.
7. Get the right mortgage structure for you
There are a number of different structures that may work for you - offset structures, interest only for investment loans, revolving credit mortgages, or plain vanilla principal and interest.
If you are building, there are a number of factors to take into account, and different lenders have different approaches to funding new home builds.
8. First Home Buyers
If you are a first home buyer and struggling to get approval - it may be that a Welcome Home loan might be best.
If you are in KiwiSaver, look at the options of withdrawing your employee and employer contributions towards the deposit on your home, and look at whether you are eligible for the First Home Buyers subsidy from the Government.
Talk to us for assistance as your mortgage broker.
9. Beware of the bank 'hard sell'
Just because your 'banker' offers to 'review' your life, income protection, mortgage protection insurance, this doesn't mean that this is the best solution for you. Shop around and keep your insurances separate from your bank.
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By Carey Church