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741 posts

Ultimate Geek


  # 2333513 9-Oct-2019 18:11
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Rates / Incentives:

 

 

 

However, What Really Matters IME:

 

So - while I have said all of the above - IMO this doesn't mean SFA.

 

What will really make the biggest difference to your mortgage is:

 

  • DON'T borrow more than you need to.
  • PAY it off as quickly as you can - every loose cent - extra income - new higher paying job ---> pay down your mortgage. (The floating portion is handy for this.)
  • DON'T increase it - esp. for extravagant holidays, over priced cars, useless expensive toys, coke & hookers etc. 
  • THINK carefully about leveraging off it into other property - yes I know its NZ'r s favourite hobby - but again not without risk.
  • AND - PAY IT OFF AS QUICKLY AS YOU CAN.

 

 

Hope something above helps and good luck with your decision.

 

 

 

 


2570 posts

Uber Geek


  # 2333593 9-Oct-2019 22:58
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That’s basically what we do/did.

$15,000 revolving credit, and lump sum 5-10k if it ever gets into actual ‘credit’ and max out the highest payment we could afford monthly.

 
 
 
 


4334 posts

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  # 2333669 10-Oct-2019 09:17
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Ok, here comes Dumb Question No. 1.

 

Is there any negative impact resulting from shifting banks on the proportion of repayments that go towards principal vs interest?

 

I'm thinking here of a standard table mortgage - something that typically graphs like this:

 

Click to see full size

 

If I say shift banks 10 years into a 30 year mortgage, even if I establish the new loan for 20 years (ie, the total loan time is the same), that amortisation process starts again; and, given that with table mortgages the point where one pays more principal than interest is quite far through the term (as shown in that image), doesn't that mean I've now gone backwards in terms of the principal/interest ratio?

 

I understand that refixing points (including when moving financial providers) is an opportune time to increase repayments etc, so if there is a negative affect this could be negated, but all things being equal is this not a backwards step?

 

Currently 85 to 95% of our repayments are going on principal, as we're only a few years off paying off all three loans; I feel there would have to be a significant benefit (eg, a rate so much better than one's own bank is willing to offer) for people in similar situations (ie, where they are past the 'hump' of interest as a proportion of total payments) to make it worthwhile moving, but perhaps I'm missing something here so would welcome someone explain where my thinking has gone wrong!

 

It's not that I don't believe in trying to negotiate decent rates - I'll always ask my current bank for a better deal, and inevitably get offered something competitive - but I don't think chasing better deals between banks is critical. As driller2000's post above makes clear - the things that have the biggest impact on mortgages are matters that are in the hands of the borrower themselves; in the age of easy and cheap credit, these fundamentals seem to get overlooked.


474 posts

Ultimate Geek


  # 2333787 10-Oct-2019 10:38
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As much as I agree pay it off as paying down your mortgage is good, at these low rates my recommendation is to first build up an emergency fund of at least 3-6 months of expenses. Particularly if the economy sours or you have a singe income or could have a large expense.

Once you put money into equity it’s locked away, $10k additional payment is what, $350 a year less interest at 3.5%... but is no good if you have a change in circumstances.

4303 posts

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  # 2333790 10-Oct-2019 10:40
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k1wi: As much as I agree pay it off as paying down your mortgage is good, at these low rates my recommendation is to first build up an emergency fund of at least 3-6 months of expenses. Particularly if the economy sours or you have a singe income or could have a large expense.

Once you put money into equity it’s locked away, $10k additional payment is what, $350 a year less interest at 3.5%... but is no good if you have a change in circumstances.

 

 

 

Do both, convert part of your mortgage to a Revolving Credit Account and pay it down as fast as possible - you can always access the balance of it as needed.

 

N.

 

 





--

 

Please note all comments are the product of my own brain and don't necessarily represent the position or opinions of my employer, previous employers, colleagues, friends or pets.


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  # 2333791 10-Oct-2019 10:41
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k1wi: As much as I agree pay it off as paying down your mortgage is good, at these low rates my recommendation is to first build up an emergency fund of at least 3-6 months of expenses. Particularly if the economy sours or you have a singe income or could have a large expense.

Once you put money into equity it’s locked away, $10k additional payment is what, $350 a year less interest at 3.5%... but is no good if you have a change in circumstances.

 

Well, if you have a decent revolving credit portion you should be relying on this for emergencies. This means, at worst you are paying 4% on what you haven't paid off (during bad times), but if during good times, you are effectively saving 4%.

 

 


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  # 2334870 10-Oct-2019 11:28
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Yep, revolving credit is a fantastic feature - provided you're financially prudent. It's a dangerous product in the wrong hands, given it provides such ready access to relatively large sums of money.

 

I don't think, though, dipping into revolving credit for emergencies should be something to necessarily encourage or on, unless you've actively paid off additional amounts of the loan so reduced the balance, or it happens to be the place where your savings are located. (Rather than having our savings in a bank account, most of ours are in the revolving credit account, given the return is far superior; we hardly ever dip into the revolving credit facility, but the savings are always there for an emergency if needed.)

 

 


 
 
 
 


zyo

448 posts

Ultimate Geek


  # 2334910 10-Oct-2019 12:11
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ASB charges a monthly fee for Orbit homeloan (basically an overdraft facility) even if it's not being used, we cancelled it after finding out.

 

When we were with ANZ there wasn't any charge, we use it to slowly chisel away a small % of our mortgage with our monthly wages while also having a buffer for any sudden expenditure.

 

 

 

Seeing your overdraft go down each month definitely encouraged us to pay the mortgage off more promptly.


3309 posts

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  # 2335061 10-Oct-2019 15:13
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jonathan18:

 

Ok, here comes Dumb Question No. 1.

 

Is there any negative impact resulting from shifting banks on the proportion of repayments that go towards principal vs interest?

 

I'm thinking here of a standard table mortgage - something that typically graphs like this:

 

Click to see full size

 

If I say shift banks 10 years into a 30 year mortgage, even if I establish the new loan for 20 years (ie, the total loan time is the same), that amortisation process starts again; and, given that with table mortgages the point where one pays more principal than interest is quite far through the term (as shown in that image), doesn't that mean I've now gone backwards in terms of the principal/interest ratio?

 

I understand that refixing points (including when moving financial providers) is an opportune time to increase repayments etc, so if there is a negative affect this could be negated, but all things being equal is this not a backwards step?

 

Currently 85 to 95% of our repayments are going on principal, as we're only a few years off paying off all three loans; I feel there would have to be a significant benefit (eg, a rate so much better than one's own bank is willing to offer) for people in similar situations (ie, where they are past the 'hump' of interest as a proportion of total payments) to make it worthwhile moving, but perhaps I'm missing something here so would welcome someone explain where my thinking has gone wrong!

 

It's not that I don't believe in trying to negotiate decent rates - I'll always ask my current bank for a better deal, and inevitably get offered something competitive - but I don't think chasing better deals between banks is critical. As driller2000's post above makes clear - the things that have the biggest impact on mortgages are matters that are in the hands of the borrower themselves; in the age of easy and cheap credit, these fundamentals seem to get overlooked.

 

 

It doesn't make a difference, assuming the repayments are equivalent. There will be a slight difference, so if you're getting a lower interest rate your repayments required for 20 years will be lower but you could either increase your repayments or spend the difference. Either way you're better off, paying the loan off quicker or having more cashflow and that's the benefit you've shifted for.


2864 posts

Uber Geek


  # 2335120 10-Oct-2019 16:39
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Talkiet:

 

Do both, convert part of your mortgage to a Revolving Credit Account and pay it down as fast as possible - you can always access the balance of it as needed.

 

N.

 

 

I can never get this straight in my head as to the best way to manage this. I understand how revolving credit is great in principal, but isn't a lot of that countered by the higher interest rate compared to fixed?

 

I want to pay it down as quickly as possible, but also pay as little interest as possible.

 

I was thinking (following dollar figures made up):

 

Say I owe $500,000 on the house. Fix the full $500,000 (max 2 year term) with the payments as high as I can manage, but also have an additional $100,000 floating/revolving credit available but keep the balance of that at $0.

 

This means I am paying the lowest interest rate on the $500,000, but I have $100,000 available at floating rates for emergencies or if my circumstances change to tide me over until the fixed term is up and I can restructure.

 

Is this a good way to do it?


4334 posts

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  # 2335130 10-Oct-2019 17:03
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That's one of the ways to manage a revolving credit, and is how we currently use it.

 

But it's also got practical uses, eg we used it to pay for house renovations - once all the bills were paid we rolled the total into an existing loan so as to negate that higher interest.

 

If you're not comfortable having a large amount of revolving credit to pay off (which in practice is is similar to having a floating loan), another way of using it is to pay off relatively small lump sums against a fixed loan; each time a loan anniversary comes around, if there's any amount you can pay off (our bank is 5% of the loan amount) use the revolving credit to do this, and then work to pay off that amount you 'borrowed' from the revolving credit.

 

That's kinda what we do when our 'savings' exceed the amount in the revolving credit, ie when we end up with money in a savings account earning SFA - put that against a fixed loan, and mark out the same amount against the revolving credit as those 'savings' to draw on if needed. Sorry, can't really work out how to explain this properly, but hopefully you kinda get what I mean?!


zyo

448 posts

Ultimate Geek


  # 2335137 10-Oct-2019 17:15
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Paul1977:

Talkiet:


Do both, convert part of your mortgage to a Revolving Credit Account and pay it down as fast as possible - you can always access the balance of it as needed.


N.



I can never get this straight in my head as to the best way to manage this. I understand how revolving credit is great in principal, but isn't a lot of that countered by the higher interest rate compared to fixed?


I want to pay it down as quickly as possible, but also pay as little interest as possible.


I was thinking (following dollar figures made up):


Say I owe $500,000 on the house. Fix the full $500,000 (max 2 year term) with the payments as high as I can manage, but also have an additional $100,000 floating/revolving credit available but keep the balance of that at $0.


This means I am paying the lowest interest rate on the $500,000, but I have $100,000 available at floating rates for emergencies or if my circumstances change to tide me over until the fixed term is up and I can restructure.


Is this a good way to do it?



I think that's a good strategy.
Although I would suggest a shorter fixed term based on current interest rate trend (ocr is tipped to go below 1)

If you have a good credit score and decent equity (30%), shop around and Banks will offer generous cash backs.

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