Mortgage Mistakes

10 Mortgage mistakes happening every day in New Zealand

Avoiding these common pitfalls is essential to help grow and protect your wealth!

1. Assuming your’e getting the best deal on your current lending

Banks are not going to give away their profits. The reality is, if you haven’t compared your interest rate to what’s available today, you’re probably missing out on some big savings. If you don’t shop around you’re not going to know what the best deal is. Half a percent difference on your interest rate can add up to $10,000+ in savings over the life your mortgage. Getting a review is free… Assuming your bank has your best interests at heart that might cost you a lot of money. A bank’s first priority is not to serve you, their customer, but to make big profits for their shareholders. Being loyal to your bank and trusting your bank can often leave you in a much worse position than if you were willing to consider your options. Being loyal to one bank may seem like a good old fashioned romantic way to go about your business. Decades ago this was the norm, but nowadays people shop around because banks are more worried about getting new customers than they are about looking after their old ones.

2. Paying fees during the mortgage set up process

Banks will always try it on. Don’t accept the fees. Always question or negotiate on why you’re being charged a fee. iRefi will know what fees can be waived or reduced and will challenge the bank if you aren’t comfortable doing it yourself.

3. Fixing for too long

Interest rates are unpredictable. Unless you know what you’re doing, fixing for longer than 2 years is ill advised in the current economic environment. Property investors often like predictable income and expenses and it can be prudent to fix some of your debt for longer periods, but for most it’s worth getting advice and having some flexibility.

4. Not reviewing your mortgage regularly

Are you less than 6 months from coming off your fixed term? You should be looking at what banks are offering and keep your options open. Always get multiple opinions. Time is your friend and you can get offers from multiple lenders without the pressure of making a quick decision.

5. Not having mortgage protection insurance

With all the talk today about redundancies and people losing their jobs, the global economic uncertainty (China, Greece, Australia…) and the unpredictable interest rates in New Zealand and afar, it’s important you consider how to protect your family and assets in the worst case scenario. These are boom times for property especially because Auckland buyers are now looking to other regions. If and when the economy turns (because one day it will), you’ll want to ensure – no matter what – the mortgage repayments don’t stop.

 6. Not paying off your mortgage quickly if you can afford it

Interest payments over 30 years instead of 25 years can make a very big dent in your pocket in the long run… it’s much cheaper to pay off your mortgage faster if there’s room in your budget (or you can make room). You’ll also be able to borrow more money if you have more equity in your home by paying it off faster. So many first home buyers get talked into 30yr mortgages. With just a little more effort, and saving, they’d be much better off with a 20-25yr mortgage. The difference is significant. You might pay another $100 a week but end up saving $100,000+ in interest payments. Compounding interest is how banks make money. It cannot be understated how significant the savings can be. Do your sums! Use our refinancing calculator to see how a shorter term can save you money. See how much extra interest you’ll pay for the privilege of an extra 5 years of mortgage payments. Asking the right questions will give you better answers.

7. Failing to take advantage of what you deserve like revolving credit or offset facilities

We’re not suggesting you spend money you don’t have, but do understand the benefits in having extra credit on hand should the market swing negatively or your circumstances change (for the worse). You’ll be able to give yourself a comfortable buffer if the unexpected occurs. Thing like; not being able to find stable tenants, or a temporary period of unemployment and you start coming under strain for payments, giving yourself breathing room is a very good idea.

8. Delaying your repayments

If your income comes in fortnightly, pay off your mortgage fortnightly, if you get paid monthly… pay monthly. Simple. Pay the mortgage first. If you can afford it, pay more each month in case you hit a bad month.

9. Irresponsible or crazy spending on depreciating assets

What do we mean? Anything that will rust, rot or lose value quickly likely a new boat or car, an expensive trip/holiday, expensive meals and presents…. the list goes on. You see young couples in the media complaining about house prices but some of them have designer clothes and upgrade their vehicles regularly. Lazy spending is irresponsible. If you really truly want to be a homeowner and property investor, be frugal! Buying a house is an asset that goes up in value that will help you grow your wealth to have those nice things. You can have your cake and eat it to… just get the house first.

10. Fixing or floating all of your mortgage debt

If you have multiple properties or a large home loan it pays to spread the risk across different options. Take advantage of the averages in the interest rates. Home loan interest rates move up and down all the time and long term the average interest rate paid is the important number. Not the rate of the day.

It’s free to do a little research and get a broker to help you out. Make your money work for you.

If you’ve got questions or comments about the above contact us.

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