Think Before You Borrow

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Buying a home and getting a mortgage is often the most important financial decision that we make in our lives. We take considerable time researching and deciding on the right home to buy, but spend little time and effort researching the most suitable home loan.

In New Zealand, there are literally hundreds of home loan products available, each with its own advantages and disadvantages. Interest rates is only one factor to consider as your own personal situation also has a huge impact.

Some of the factors to consider are:

1. How long do you plan to live in this property? If you may be selling in three years, you wouldn’t fix your mortgage for four years. The length of time you plan to stay in the property can affect the term of your mortgage.

2. Will the property need some improvements that you may have to save for or borrow for in the future? If you need to borrow for this, then you should ensure your lender will provide additional funding.

3.  Is this property to be owner occupied or an investment? Investment properties have special tax deductibility so loan structuring is different than if it is your home.

4. Do you have job security when making this commitment and if you have a change of employment, what affect would this have on your loan? You may need to ensure your mortgage has flexibility for reduced repayments or loan repayment holidays.

5. Are you likely to receive a lump sum such as a bonus or inheritance in the near future? If this is likely, ensure part of your mortgage is on a floating rate to avoid penalties for extra repayments.

6. If the loan has been approved on two incomes, can you manage to sustain your loan repayments if your circumstances change? Some loans enable you to lower your payments in such situations while others may not allow this flexibility without incurring a penalty.

7. If you take a lower interest rate now, and rates rise in the future, how will this affect you? You should factor in what your repayments may be if interest rates increase.

8. Does fixing your home loan give you the flexibility that you require or would a split loan work better for you? It may pay to have the stability of a fixed rate but the flexibility of part of your loan being on floating.

These are just some of the factors that Mortgage Link feel could impact on your financial position and the requirements when structuring your mortgage. It is important that you discuss your situation with your advisor so that you make the correct decisions about your mortgage.

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