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60 STYLE | finance<br />
PAY YOUR<br />
MORTGAGE<br />
OFF QUICKER<br />
Restructuring your mortgage repayments could save you<br />
thousands of dollars and by making just a few simple<br />
changes you’ll be one step closer to a debt-free life.<br />
WORDS SUE MCKENZIE<br />
When I meet with people about their mortgage, I get them to consider<br />
a life without one. The idea of being debt-free is a wonderful motivation<br />
and makes people think of what they would do with the extra money –<br />
make property investments, home renovations, go into business, or take<br />
an overseas trip.<br />
The most-valuable lesson for most Kiwis is that it’s not the interest<br />
rate that matters, but rather the amount of interest you pay over the<br />
term of the mortgage that is most relevant.<br />
Ultimately, the goal is to pay your mortgage off quickly, meaning you’ll<br />
repay less over time and the property can become the leverage tool<br />
with which a whole manner of lifestyle changes can become available.<br />
An important fact to consider is that by making an increase in payments<br />
of around the price of a coffee a day for you and/or your partner, you<br />
could reduce your mortgage term by five to 10 years. That’s a huge<br />
saving when you consider the average total repayment is more than two<br />
and half times the original loan amount.<br />
Once I understand the amount of equity (the difference of the<br />
home’s fair market value and the outstanding balance of the property’s<br />
mortgage) a person has in their property, as well as their income, we<br />
can look at the right way to tackle their debt. This usually includes an<br />
assessment of whether the current mortgage lender is the right one<br />
for the homeowner. The contract between you and your lender isn’t a<br />
rigid one and mortgages should reflect the best aspects of your financial<br />
situation at any given moment – if your current lender isn’t the best<br />
option for you, it’s time to move to one that is.<br />
A lot of the issues that work against mortgage repayments begin with<br />
short-term debt through hire purchase, personal loans and credit cards.<br />
It’s important to review your finances and be able to answer that ageold<br />
question: “Where is my money going?”<br />
Consolidating that debt will give people more money in their pocket<br />
and I encourage them to use that on mortgage repayments.<br />
Those with high incomes or joint incomes have the ability to put<br />
more towards debt while interest rates are still low. If you’re in this<br />
situation, look at breaking your mortgage up into manageable chunks to<br />
achieve a series of short-term goals. For example, aiming to pay five per<br />
cent of the loan in a year (both principal and interest) is very attainable.<br />
The five-per-cent chunk sits aside from the total and can have current<br />
best interest (often floating) rates applied to it. I’ve seen people achieve<br />
incredible things when they aim to repay small bits like this at a time.<br />
They’re also thrilled to be making a dent in their debt.<br />
Of course, the more you pay off in the short-term, the better access<br />
to interest rates you have in the long-term, too. Consider your loan-tovalue<br />
ratios, which is the value of the loan measured against the value of<br />
the property. The better the percentage in your favour, the less interest<br />
you have to pay.<br />
Self-employed people or business owners that have fluctuations in<br />
cash flow have some different options. There’s no need to repay the<br />
same amount year round and absolutely no point of struggling to make<br />
repayments at some times of the year, while finding it easy at others.<br />
Your mortgage repayments can be structured to reflect the peaks and<br />
troughs of your income.<br />
Property investors have many options available to them. They will<br />
need to consider tax implications and a mortgage adviser will look at<br />
ways they can pay off their personal debt first before their investment<br />
debt.<br />
Buying, selling and repaying the mortgage, which for many is their<br />
most-prized possession, can be stressful, but if you take a moment to<br />
consider all the things you have to gain from making smart mortgage<br />
choices, it will seem like the simplest thing.<br />
Some times are better to pay more than others. For that reason,<br />
I recommend homeowners have a mortgage review every year –<br />
circumstances for both them and the lenders change, and it’s about<br />
making the most of those situations to create a debt-free asset.<br />
I remember the first time I restructured my mortgage to work better for<br />
me; it was not only empowering, but saved me a considerable amount<br />
in the long-term. The sooner you do it, the better the returns.<br />
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