Mortgages and Loan Strategies – October 2018

Mortgages and Loan Strategies - October 2018

(Ruoxi’s note: This exclusive guest post by Eugene Bartsaikin, director of Sycamore Financial Advisers and a Registered Financial Adviser, covers his opinion on the current mortgage interest rate environment and the strategies that homeowners can employ to maximise the opportunities and savings. Although I am personally a fan of mortgage brokers and appreciate the service a good mortgage broker can provide, I have not received and will not receive any monetary benefit from this post or any referral as a result of this post. 

Interest rates have dropped, now what?

We’re sitting at an all year low for short-term interest rates right at this moment. The question many borrowers ask me is how to take advantage of them. I’ll break down a few common scenarios so you know what to do with your mortgage strategy, but before that, I’d like to make a claim.

Ruoxi Wang, Eastern Suburbs' Specialist, ray white, orakei, mission bay, kohimarama, st heliers, st johns, glendowie, top real estate agent

30-year mortgages shouldn’t take 30 years to pay off.

Over these last several years we’ve seen the lowest mortgage rates New Zealand has ever seen (for e.g. HSBC is currently dangling a 3.85% 18-month special and major banks like ASB offering 4.15% for a similar term), yet at the same time very few are paying off their loan faster. 

I’ve seen families who’ve continuously been drawing on their home equity to consolidate debt, then re-structure back onto a 30-year loan and often have little to no assets come retirement.

This needs to change!

What’s missing is a strategy to tackle the family mortgage so equity can be freed up to work on building your legacy whether that being to start a business, buy another rental property, work fewer hours or give back more to the community.

Money is often more about behavior and psychology than it is about the numbers. A strategic approach factoring in your long-term goals, income & money personality is critical in the current environment.

So, let’s look at some scenarios about how to take advantage of the lower mortgage rates.

1. “I fixed my loan at a higher rate, I want to break it so to reduce my repayments at a lower rate”

  • You’d first need to calculate whether the break fee is worthwhile for the interest saved.
  • If it is, and you can afford to do so, we’d strongly urge to leave your repayments unchanged. Those small difference will compound over the years to come.
Ruoxi Wang, Eastern Suburbs' Specialist, ray white, orakei, mission bay, kohimarama, st heliers, st johns, glendowie, top real estate agent

2. “How do I pick between the different fixed-term rates?”

  • Firstly, the advertised offer isn’t anywhere near the actual offer mortgage advisers are able to obtain. We’d need to compare the offer relative to what is reasonable for your circumstances across the market.
  • We should also consider any major cashflow events over that coming period to avoid any future break fees.
  • For those who are risk-averse and tend to lean towards the 3+ year fixed rate terms, another alternative is to set your repayments based on the 3-year rate but fix for the shorter loan term. The extra principal would compound on every repayment you make and in case interest rates do rise you’ve already made headway on your loan and can afford the higher rate.
Ruoxi Wang, Eastern Suburbs' Specialist, ray white, orakei, mission bay, kohimarama, st heliers, st johns, glendowie, top real estate agent

3.“New bank has offered me an amazing interest rate, should I make the move?”

  • Not always! You should consider your total cost to move relative to the savings to move. We can help with such calculations, making it easy for you to just pick your option. 
  • Don’t forget about your cashback obligations! Most banks tie you in 3-4 years so be mindful of having to pay that back and whether you can commit to a new bank for that long either.
  • Consider the offer in full. Lower interest rates often mean lower cash incentives.
Ruoxi Wang, Eastern Suburbs' Specialist, ray white, orakei, mission bay, kohimarama, st heliers, st johns, glendowie, top real estate agent

Conclusion

It can all seem like a lot of work to constantly balance your loan and keep up to date with getting offers from multiple banks. It doesn’t have to be when you have a mortgage strategy in place. Speak to our team of Registered Financial Advisers & Chartered Accountants to get your tailored mortgage strategy put in place.

Contact Eugene today to learn more about tackling your mortgages

Ruoxi Wang, Eastern Suburbs' Specialist, ray white, orakei, mission bay, kohimarama, st heliers, st johns, glendowie, top real estate agent

Disclaimer: The opinions expressed by the guest writer are his alone, and do not necessarily reflect the opinions of Ruoxi Wang, New Zealand Premium Homes, Ray White Remuera or any employee thereof (together, the Individuals). The Individuals are not responsible for the accuracy of any of the information supplied by the guest writer. This work is the opinion of the guest writer. 

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