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