Finance: Mortgage repayment wisdom

By Brendan Manning


The home is the biggest purchase made in most people's lives, which means a mortgage is often the biggest commitment.

Choosing the right mortgage can save thousands of dollars, as can how you choose to pay it off.

FLOATING OR FIXED?


While floating rates offer the flexibility to make extra repayments, increase or decrease repayments, or repay the mortgage early without copping penalty fees, there is also the downside of interest rates rising unexpectedly.

Fixed rate mortgages provide more certainty because the lender cannot change the interest rate for the certain period for which the rate is fixed.

However, those on fixed rates often face penalties if they want to change the conditions of their mortgage and miss out when floating rates drop.

Consumer NZ advises both have their pros and cons and there's no clear evidence that fixing or floating consistently produces the lowest interest costs.

"It comes down to what you're more comfortable with - certainty or flexibility."

LOOKING FOR A PROVIDER


While shopping for a mortgage, Consumer NZ says it is important to work out the amount you want to borrow and to allow for lawyers' and valuers' fees, moving costs, immediate renovations that may be required and any loan application fee.

Sorted.org.nz advises mortgage application fees are usually negotiable and banks can offer discounts on day-to-day banking if you have your mortgage with them.

Mortgage brokers, on the other hand, know interest rates and application criteria for different lenders, so can negotiate on your behalf and help you put your loan application together.

Unfortunately, brokers don't cover all lenders - some banks don't deal with brokers.

Real Estate Institute of New Zealand chief executive Helen O'Sullivan says although most real estate agents aren't qualified to give financial advice, they can often recommend a couple of good mortgage brokers.

"The reality is, when you're in business, you pass people on to people you know will do a good job, because they're your clients and you value them."

KEEP COSTS DOWN


The faster you pay off your mortgage, the more you'll save long-term, and the cheaper your mortgage is to start with, the less it will cost you over time, Consumer NZ advises.

Making regular payments as large as possible will save you significantly in the long-term.

Paying your mortgage off fortnightly as opposed to monthly can yield further savings, because although there are generally two fortnights a month, there are 26 fortnights a year - not 24.

Paying half your monthly repayment every fortnight means, in effect, you will make an extra month's repayment each year, says Consumer NZ.

MARKET UPDATE


The latest ASB Housing Confidence Survey showed only 32 per cent of respondents expected interest rates to rise over the next 12 months, which was consistent with the banks' view on the official cash rate (OCR) and floating mortgage rate, says ASB chief economist Nick Tuffley. However, change could be on the horizon.

"Fixed mortgage rates are likely to increase over the coming year as the market gradually moves to anticipate cash rate increases from the RBNZ."

Also, Kiwibank has just launched a six-month fixed home loan rate of 4.79 per cent, the bank's lowest rate in its 11-year history. The new rate is a cut of 0.46 percentage points, down from 5.25 per cent, and is offered as a "limited time special".

SBS Bank is offering the next most competitive six-month rate of 5.10 per cent. Also this month, Westpac cut its one-year rate from 5.25 per cent to 4.89 per cent, its three-year rate from 5.90 per cent to 5.39 per cent, and its five-year rate from 5.99 per cent to 5.75 per cent.

Late last month, ASB cut three of its fixed home loan rates by 0.15 per cent, while lifting its two-year rate by 0.20 per cent.

Reserve Bank governor Graeme Wheeler has kept the OCR at 2.5 per cent, but singled out rising house prices as a threat to the country's financial stability.

MORTGAGE TIPS


Be as careful in choosing a mortgage as you are in choosing a home. Shop around for the best mortgage; you're under no obligation to go with your regular bank. Negotiate. For example, another bank may offer a better rate on condition you switch your accounts to them.

Mortgage brokers deal with a number of lenders, so they can save you time shopping around. Borrow only what you need. Some lenders may tempt you to borrow more.

Make your repayments as high as you can afford, because the sooner you pay off your mortgage, the less you'll pay in interest. Source: sorted.org.nz

- Hamilton News

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