Why is it important to consider your mortgage structure?

Why do you need to think about your mortgage structure?

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Thinking about your mortgage structure is key if you want your mortgage(s) to play a key role in achieving your financial goals.

To explain why, we spoke to Money Empire Manager Kayne Wahlstrom and Registered Financial Adviser Goran Loncar.

What kinds of mortgage structures are there?

Kayne explained that, generally speaking, there are three kinds of mortgage structures:

  • Fixed rate – "This is fixing the mortgage – or a portion of the mortgage – at a certain interest rate to get certainty around repayments for a period of time."
  • Principal and interest – "This is when you're paying principal down, normally on your owner occupied home."
  • Interest only – "With these, you're only servicing the interest component of the loan. Your repayments are less as you're not paying debt and these are most often used as investment property finance."

The kind of structure used is sometimes not a choice you can make, Goran explained. "Most banks these days prefer mortgages for owner-occupied properties to be principal and interest. Three or four years ago you might have been able to get it on interest only, but banks now want to see that debt being paid down. Interest only loans are now almost exclusively approved for investment properties."

Coins in front of a model house.There are multiple kinds of mortgage structures you can choose for your property.

How important is considering your mortgage structure?

Thinking about your mortgage structure is massively important.

"You need to understand your goals, needs and objectives of what you're wanting to do around mortgage strategy and structure," Kayne said. "There's no point taking out a mortgage and not knowing what you want to do with it long term. For instance, you need to consider things like fixed rates – do you fix for the short, medium or long term? Do you have rolling credit? Do you keep a portion to pay down debt quickly in lump sums? Do you go interest only? There's a lot to consider."

Your mortgage structure is also important to think about because, as Kayne pointed out, banks don't necessarily have your best financial interests at heart.

"A bank is going to try and lock you in for as long as possible – they want you as a client for as long as they can make money off you. But when someone comes to us, we look at goals and objectives first to understand the client's needs and wants. From there we work out a mortgage solution to find a loan that best suits that individual, rather than what suits the bank."

So what's the best structure to choose?

There is no one answer, as it all depends on what you want to do with your mortgages and the strategy you're pursuing with them.

To discuss yours, get in touch with the team of Auckland financial advisers at Money Empire today.

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