If you have been affording the payments okay, instead of just dropping to the lower repayments to give yourself a little bit more spending cash, what if you kept the repayments at the same level?

Ultimately, most homeowners want to be debt-free. Just imagine how much different your life would be if you didn’t have to make a repayment on your mortgage.

The only way to achieve that is to either win the lotto or start working on a strategy to pay your mortgage off faster.

At Mortgage Managers we suggest to all our clients to round up the repayments a bit and focus on paying your mortgage off faster. You may be surprised how those little extra bits on your mortgage do make a huge dent and ensure that you get freehold years earlier.

Let us explain why that is.

Just as an example, if you have a mortgage of say $500,000, then for a standard 30-year mortgage over 30-years your repayments might be about $1,460 a fortnight. Of that repayment amount the majority is interest, and a little bit is used to pay down the mortgage – of the $1,460 that you pay $1,250 is interest, leaving just $210 that goes towards paying off your mortgage.

So if you were to round up your repayment up by $140 to $1,600 a fortnight that is actually increasing what you’re paying off your mortgage by 66% with every extra dollar that you pay over and above the interest is paying off your mortgage

The graph below shows how much of a difference this extra amount can make to your mortgage.

As noted above, the extra $140 a fortnight will mean that you save over $160,0000 and can have your mortgage paid off 6½-years sooner!

That’s huge – imagine having an extra 6½-years with no mortgage to pay.

Remember, as time goes on and the longer you’re paying extra, the bigger that effect becomes. That’s because you’re paying less and less interest and more goes towards paying the principal and the effect can be the same (or similar) if you can pay a small lump sum off your mortgage but then keep your repayments the same.

So what do you need to be thinking about when you refix your mortgage?

Well, the first thing you should consider is: do you have your mortgage with the right bank?

The difference between the mortgages with various banks is quite significant. With some banks you’re restricted by what extra money you can pay towards your mortgage and that means it’s harder for you to pay the mortgage off faster and harder for you to save money. Of course, the banks don’t really want you to pay the mortgage off faster as while you’re saving money on your mortgage, that’s coming straight off the profit to that bank.

So the first thing you need to do is consider if you have the right home loan.

You Want The Right Home Loan

What is the right home loan?

As mortgage adviser the team are aware of all the options and can help you decide what will be best for you.

Consider things like the features of the mortgage and the types of loans available.

Have you considered a revolving credit mortgage? These can be extremely helpful in a lot of situations, as you can apply money to the mortgage like an overdraft, but draw it back if you need it later. The key here is you only pay interest on the outstanding balance on any particular day. It’s calculated daily. So that means if you can apply money to the mortgage account, and even if it sits there for five days, you have saved interest on that. The cumulative effect of doing this can be huge. But there’s also the risk with revolving credit mortgages, like overdrafts, that you never reduce it far from the limit. Because it’s a floating interest rate, which is higher, that is a problem if you can’t manage it properly.

Another type of loan that is getting increasingly popular is the offset loan. The key here is you can link a number of savings accounts to your mortgage, and you only pay interest on the net difference. How that works in practice is you might have a $20,000 offset loan as part of your mortgage. But if you have three different bank accounts with a total of $14,000 in savings, then you will only pay interest on the $6,000, being the difference between the offset mortgage and your savings. This works exceptionally well for people that like to have different bank accounts for different savings projects, where you might have a savings account for a holiday or a wedding where typically they would be earning low interest, which is then also taxed. So it makes sense to instead have an offset against your home loan, where you’re saving a larger amount of interest without paying tax. Unfortunately, offset home loans are only available from a limited number of banks at this stage, but definitely worth considering.

For most people, the majority of their lending will be structured on a fixed home loan or split across a number of fixed home loans, which is more popular and the recommended way to do things. Fixed home loans have lower interest rates, and you also have certainty on what your repayment is. You have certainty because your interest rate is fixed for a period of time, and therefore the bank can calculate exactly what your repayment needs to be for that particular loan until it comes off fixed. With the fixed home loan repayments, you’re almost certainly going to have an odd number as a repayment. But unfortunately, most people leave that repayment as it is, which is the minimum repayment to pay the loan off over the longest possible term. Even if you do nothing else, you should at least round up that repayment a little bit, because every extra dollar is going to pay principal off, and it will make a difference to how much you pay over the life of your loan. Most banks allow you to pay some extra on your mortgage so that you can round this up, but the bank policy on this varies significantly between the banks, and they are bad at promoting the ability to pay extra, of course. So what you need to know is what your bank will allow, or you need to shift to a bank that has the most flexibility. You want to be able to increase your repayments when you have extra cash available, but decrease them should times get tough. Over the years of having a mortgage, there will be times that get tough. Nothing is surer. Interest rates can go up again and put pressure on your finances, or you may change jobs or have some extra expenses like health care within the family. There are a number of reasons that you could be under financial pressure, so you need to ensure that you have the flexibility to reduce your payments to the minimum should that be needed.

Unfortunately, most banks would require you to reapply at that time, and of course, at that time when you want lower repayments your statement of position is not going to look that great.

Don’t get stuck in that trap.

So what should a mortgage review look like?

Of course, you’re always going to want to get the best possible interest rate you can, but you need to be mindful that the best rate today may not be the best rate tomorrow. As mortgage advisors, we always focus on getting a competitive rate, but making sure that you are with the bank that can offer you the mortgage structure that is going to suit you best.

You need to consider what bank you’re with and whether it’s worth changing. It’s actually easier to change than most people believe, and probably the banks try to make it sound as though it’s harder than it actually is. There is a cost to changing banks with your solicitor needing to be paid, but in most cases, we can negotiate some cash from the new bank you’re moving to that will help to cover those costs, plus it.

Talk To You Mortgage Adviser

When you talk to Mortgage Managers we can quickly assess what options you have including letting you know whether you’re with the right bank already (and therefore just need to make some tweaks to what you’re doing) or whether there is a better option out there for you.

It’s up to you – take this opportunity of the dropping interest rates and review what you’re doing – to make sure that you don’t spend the next few years paying more than you really need to.

We hope this has been helpful, and we look forward to talking to you and helping you in the future.

The post Homeowners Should Take Advantage Of Dropping Interest Rates appeared first on Mortgage Managers.

We do understand that it’s easy, but just because something is easy does not mean it’s a good idea.

In many cases taking the easy path in anything we do is rarely as good – and in our experience refixing on the banking App is a bad idea too.

Banks Make Refixing Easy

Banks have made a big effort to make things easier for customers, and maybe we should ask why.

There are probably a few reasons and they are not necessarily what the banks would tell you.

Here are a couple of my ideas on why I believe the banks have made a push to promote refixing of loans on the banking Apps or websites.

• Yes, it’s quick and easy and Kiwi’s like that.
• Automated processes save the bank money (therefore helps the banks profits)
• This removed advice and therefore risk as it’s the customer (you) making the decisions and therefore it’s your fault.
• Kiwi’s are less likely to review what else is available – we’re generally complacent and trust the banks – but we shouldn’t.
• Overall – it’s more profitable for the bank.

But just because something is easy does not mean it’s good.

The ‘one-click’ refixing of loans on the banking Apps or websites is a perfect example of why easy is not good.

Refixing With An Adviser

Many people that will read this may think that we’re just saying this because we are advisers and because we want people to refix their mortgages with us as we get paid for that. Most advisers will not dispute this, but we’re also not doing mortgage refixes just for the money as we do not get paid that much for doing them (typically $150).

As mortgage advisers our whole purpose is to give advice and that is for sourcing the mortgages but also for helping people pay their mortgages off faster, and to be honest paying off the mortgages is where advisers can really add value and it’s also something that the banks are not good at – it’s of no benefit to the bank to help you save money.

We like to think that we can keep the banks honest – to make sure that the customer (you) are being offered advice, given the options and ultimately are given a competitive deal by the bank.

If the bank that you are with is not looking after you, then we will suggest alternatives.

Obviously your bank is not going to do that – they’re not going to say “head over to this other bank as they have better options and more competitive interest rates” … it just doesn’t happen.

It’s all about getting good advice.

Let’s explain why we think that refixing on the banking App is a bad idea, and for this we will use a real life example that we had this month. This is just one example, but it’s typical of what we are seeing all of the time and the worst thing is we know for each of these that we see and are able to help – there will be a lot more people that are using these App’s to refix their mortgages quite unaware of how much it’s really costing them.

Real Life Example – Linda’s Story

It’s easy to talk about the advantages of having an adviser help with refixing your loans, but as mentioned easy is not always the pathway that we take.

We thought it would be better to illustrate why we say that in our experience refixing on the banking App is a bad idea by using a real life example that we have had this month – April 2024.

Linda (real name) has her mortgage with New Zealand’s largest bank which as advisers we are not allowed to name, but this story is not unique to any specific bank either.

Fixed Term Ending – Linda had her fixed term loan coming to an end and she was provided new rates by her bank. Before she went ahead and locked in her new rates, she wanted to get some advice and so reached out and we discussed her options, and of course the rates that were offered. The rates offered were shown as “special” rates and discounted from the advertised (carded) rates, but we knew that they were not as good as other banks were offering.

Tried for Better Rates – it would have been easy for Linda to accept that the bank was offering her something “special” and therefore she could have just clicked to lock in these rates. Luckily Linda is a person that likes to get advice and so we had the opportunity to review what she had been offered. Obviously when we saw the rates that were offered we contacted the bank to see if they could be a bit more competitive, but unfortunately in this case they were not willing to do any better.

Refinanced Linda’s Mortgage – given that this bank was not competitive we were left with no other option but to refinance Linda’s mortgage. It’s not that we do not like her existing bank, but as advisers we need to ensure that we are doing the right thing by our clients and in this case her bank was not willing to offer competitive rates and so when we provided options it made no sense to stay with the bank and in fact doing so would have been detrimental to Linda.

Better Interest Rates – we refinanced her mortgage and were able to secure a 3-year fixed rate of 5.99% compared to the “special” rate she had been offered of 6.65% and this meant that the repayments could be $200 a month less. She could have just selected the lower repayments too, and without advice probably would have – but when we showed her the impact of paying the extra $200 a month on her mortgage there was no way that she would pay the lower amount.

Paying More & Savings – as you can see in the diagram below, by taking the lower interest rate but still paying the same higher amount Linda is able to shave another 2-years (almost) off her mortgage term, and that will save her almost $40,000! That’s money that would have normally have been paid to the bank, and would have helped the bank report large profits while people like Linda continue to pay their mortgages.

Extra Cash Too – there is always a cost to refinance (solicitors fees) but most banks are willing to give a cash contribution to attract new customers. The cash does vary from time to time and bank to bank, but there is normally enough to cover the solicitors fees plus more. In Linda’s case there she received enough to pay the solicitors costs and also for a wee break to Fiji which she has booked for July.

As mentioned, Linda’s story is very typical of what we see.

We see so many cases where customers are encouraged to take the easy path and that means refixing on the banking App with zero advice and the rates that the banks has offered.

Linda reached out and we were able to provide advice and ultimately that meant refinancing – but she ended up so much better off.

Small Extra Repayments Make A Huge Difference!

Do you know why even small extra payments make such a big difference?

Most people are surprised to see what even a small amount extra can save you on your mortgage, and Linda was no exception. She knew that it’s good to pay more, but had no idea just how much difference a small amount extra makes.

The thing is, Linda’s standard repayments at the lower interest rate (5.99%) would have been $3,722 monthly, and that includes interest of $2,595 which means that the loan is being reduced by the principal amount of $1,127.

So the extra $200 that she would have been paying to her existing bank means that she is paying just an extra 5% (approx) on her loan repayment, but it actually means she is paying an extra 18% off the principal.

Try our mortgage calculator and see what you could be saving.

The illustration above is from the second calculator.

Now What About You…

We’ve helped Linda as you can see, but we know that there are hundreds of people (no, probably thousands) that could do a lot better too.

Have you had anyone review your mortgage?

If you have a mortgage then you can review it at any time. Often it’s when your loan is due to be refixed that you decide to look at options and might contact a mortgage adviser, but that does not mean that this is the only time that you can review things.

The post Why Refixing On The Banking App Is A Bad Idea appeared first on Mortgage Managers.

HSBC says it’ll wind-down its New Zealand wealth and personal banking business over several years.

Home Loan Customers Will Need To Refinance

On the HSBC website it states that existing home loan customers with a fixed-rate maturing before 13 September 2023, HSBC will offer a further fixed rate term for a maximum of 6 month which is designed to allow time for customers to apply for finance elsewhere.

If your fixed-rate matures after 13 September 2023 then they say that your home loan will move onto the variable/floating rate on the maturity date and will remain on the variable/floating rate while you identify a new financial services provider to refinance with.

If you have a very low home loan rate that is fixed for a while yet then you may not be in a hurry to refinance, but you might want to check that you still fit the criteria in case there are changes that you have to make before refinancing your HSBC home loan.

Effectively they are forcing you refinance your existing HSBC mortgage as nobody wants to be stuck on a variable/floating rate for too long.

Who Should I Refinance My HSBC Mortgage To?

That’s a very good question, and especially if you have most of your banking with HSBC.

As mortgage advisers we can check that you fit the various banks criteria and can let you know what choices you have, but if you have a choice then you should carefully consider what bank you refinance to and go with what will be best for you.

You have the option to shift to the best mortgage, but what is the best mortgage?

The best mortgage would be one that offers flexibility so that you can manage the loans as your circumstances change over time and yet gives you the ability to pay the loans off faster in those periods when you can. It should be with a bank that has a good reputation too.

Consider The Key Features A Good Mortgage Should Have

When trying to establish what is the best mortgage type to have you need to consider what you want with your mortgage, and for the purposes of this article we will assume that you want to be able to pay it off as fast as you can and save a huge amount too.

We are talking about a home loan here – your goal may be different with a mortgage on an investment property, a mortgage used for business or when you never plan to have the property or mortgage for any length of time. We are also not talking about bridging finance or when specialist finance is needed.

These are the key features that your home loan should have:

1. Revolving Credit Facility – when used properly these can be used as the main loan funding facility. It does not need to have a large limit, but it gives you the control of the loans and flexibility to adjust the repayments, the ability to save a fund lump-sum repayments and also to build up a back-stop. These facilities are great for pre-planning for a change in your financial situation like starting a family, returning to education or training and a change in jobs or careers.
2. Fixed Loans – the interest rates are almost always lower on a fixed loan and the nature of being “fixed” gives the comfort and ability to budget. Most people want to have most of their lending on fixed rates for these reasons and it’s always best to split up your mortgage into two, three or more fixed loans too as that gives added flexibility.
3. Ability to Increase Repayments – with all home loans you can increase the repayments when your loans are at the floating rate (higher rate) but there are less options when you select a fixed rate. Almost all banks allow you to increase your repayments on fixed loans, but many are quite limited. Some will limit you to ‘say’ 5% of the total mortgage, or $15,000 per year but what you want is a mortgage type that allows you to increase each loan by ‘say’ $1,000 a month so if you have your mortgage split into five loans you have five opportunities to increase the repayments to a total of $5,000 a month extra which is $60,000 per year.
4. Increase Repayments Without Shortening Loan Terms – unfortunately with most banks when you increase any repayments by default the bank shorten the loan term. This sounds fine at first, but a mortgage is a long-term commitment and things will change over time so you will not want to be forced into a situation when you need to make larger repayment’s because of this. Specifically if interest rates increase, or your income reduces – both of these are quite common and cause a lot of issues.
5. Ability to Decrease Repayments – while it’s good to be able to increase repayments on a fixed loan, having the ability to decrease the repayments as well gives people the confidence to do increases beyond what they may have done otherwise. This alone can mean you will end up doing larger increases and therefore save more.

These may differ from why you went to HSBC, as they tended to focus on special low home loan rates rather than features like these. In our opinion these features listed here are the main and arguably the most important features that will help you save the most on your mortgage – more important than just the best interest rate today.

Get Started Now – Know Your Options

There is no reason to wait too long, and even HSBC are telling you they want you to start engaging with other financial services providers. You may be a few months away from when your mortgage comes off the fixed term but it would be worth starting to make plans now even if you do not intend to shift just yet.

As mortgage advisers we can help find you the best mortgage to replace what you had with HSBC.

It costs you nothing to refinance your HSBC mortgage to another bank as the banks pay us a commission, so really you are getting the advice and out time at no cost.

Simply complete the form below to get started, or your talk to one of our team to discuss first.

The post When Should I Refinance My HSBC Mortgage? appeared first on Mortgage Managers.

For most of us our mortgage will be the biggest financial commitment (loan) that we will ever have.

Very few of us can afford to buy a home with cash (just our savings) so a mortgage is an inevitability for those of us who want to buy a new home.

Why Get Mortgage Advice

Getting a mortgage is not something that we do each day, so it makes sense to get advice from a professional adviser who lives and breathes mortgages.

You may know something about finance and even think you know quite a bit.

It’s possible to get a lot of information online and also Kiwis tend to get given advice from family and friends which can be helpful too.

But as mentioned, for most of us our mortgage will be the biggest loan we will ever have and due to the loan size it’s also a very long-term financial commitment. For this reason alone you should seek all the advice that you can as you may be able to benefit from some advice that may have otherwise been overlooked.

Small changes can make huge differences to the total cost of your mortgage.

Where To Get Good Mortgage Advice

Kiwis tend to get advice from family and friends and as already mentioned that advice can be very helpful; however you should also seek advice from someone in the business.

To many the obvious place to seek advice on mortgages will be from your bank, but often the advice that a bank will give is very limited to what that specific bank can offer.

The better option is to speak to a mortgage adviser.

Most New Zealand mortgage advisers will be happy to offer free advice with the benefit that they know details on a range of finance options from the banks and non-bank lenders.

Of course advisers would love to arrange the finance for you too as that is how they get paid – generally from the bank at no additional cost to you.

You should get advice from a few sources and from that information you will be able to make better decisions, but even once you have a mortgage it is recommended to review your situation on a regular basis as things do change and you want to be able to fine tune your mortgage or even refinance your mortgage if there are some benefits to you.

The post Get Mortgage Advice Before You Start Looking At Properties appeared first on Mortgage Managers.