Did you know that 90% of our clients who come to us, come to us with a mortgage structure that is completely wrong for them? They’re always paying too much interest and the structure of their mortgage is not based on their financial goals, or any particular strategy. It’s not their fault either, it’s probably what someone at the bank told them to do, or maybe it was a well-meaning friend or family member.
Watch Instead: How can I refix my mortgage?
But the bottom line is that you need a strategy for your mortgage, and this advice is the same when it comes to refixing it. In this article, we’ll share 5 tips for you to think about when it is time to refix your mortgage.
Tip 1: Decide whether or not you need to refix or refinance your mortgage.
When a mortgage comes off fixed-term interest, it’s a great time to review, change something about your mortgage, or switch banks completely. You may be thinking “why would I go to another bankwhen the interest rates are the same” but other banks may be offering different deals or better structures to suit your needs so always pays to look around.
Tip 2: Consider restructuring your mortgage
Another way that you can change your mortgage when your mortgage comes off fixed-term interest and comes onto a floating rate is to restructure it. Many homeowners in New Zealand have one or two big mortgages and they don’t realise they can structure these differently, and more beneficially, as opposed to having them on the default 30-year term on a fixed interest rate. You can increase or consolidate how many loans that you have, you can change the interest type you have on these loans – such as interest-only or floating or you can split your loan and have a portion of it in a revolving credit or an offset account. Some of these options, if structured correctly, can save you a lot in interest repayments.
When it comes to restructuring, remember that you again need a strategy for your mortgage which is going to be dependent on your financial goals, your priorities, your values, and what you’re trying to achieve with your finances and with your mortgage.
Tip 3: Consider how long to fix your mortgage for
This question comes up quite a lot. How long should I refix my mortgage for? Should it be 1, 2, 3, 4 or 5 years? The logical decision might be to put on the lowest interest rate, but it depends on where you think the market is going. You want to try to catch the lowest interest rates possible, so if you think that interest rates are going to be lower in a year from now, then fix your mortgage for a shorter time period. If you think interest rates will increase, then fix your mortgage for longer.
Tip 4: Consider your repayment strategy
A lot of these decisions that you’re making depends on whether or not are you planning to pay your mortgage off over 30 long, hard years, or are you actually going to put in a strategy in place to pay it off faster. When you’re paying less interest on a mortgage, you have an opportunity to implement a strategic and intentional repayment strategy where you can pay it off faster in seven, 10 years, 12 years etc. We’re seeing clients saving up to $400,000 implementing a strategy that reduces their interest and a repayment strategy at the same time.
Tip 5: Consider who is going to advise you when you refix your mortgage
You need to decide who is going to be advising you on making this important decision and who is going to be most impartial and actually get you the best advice, the obvious answer being your mortgage advisor. Unlike going to the bank, a mortgage advisor will consider you financial goals, review your mortgage and current structure, and consider what your repayment strategy is (not to mention locking you in for the maximum term to squeeze every dollar of interest out of you!)
If you really are interested in learning more about how to refix your mortgage properly then download our FREE refix e-book as it’s going to help you reduce mortgage interest when your fixed mortgage is expiring. It discusses the common mistakes that homeowners make when it comes to refixing as well as insider secrets to help you reduce your mortgage interest.
Keep in mind this article is providing general information and not individual financial advice.