Buying a home is probably the biggest financial investment you’ll ever undertake, so it’s one to get right. Before you take the plunge, make sure you do your homework.
Table mortgage
This is the most common form. The repayments do not alter over the life of the mortgage. At the beginning, most of each repayment is interest, but by the end, you’re mostly repaying principal.
Revolving-credit facility
This operates like a large overdraft, secured by the mortgage over your home. Interest applies whenever the account is overdrawn – and the account can be overdrawn at any time up to the maximum of the mortgage.
Revolving credit is super flexible and works well for disciplined borrowers. But offsetting the flexibility is the temptation for some people to never quite pay down the balance. If you want the flexibility of a revolving-credit mortgage without the temptation, ask your lender or broker about your options. Some possibilities are a revolving-credit mortgage with a reducing balance (where the credit limit available reduces over time), or a flexible table mortgage that allows you to “redraw” some of what you have repaid without penalty.
Reducing mortgage
On each repayment, you repay the same amount of principal. This reduces the interest charge each time, so each repayment is less than the previous one.
Interest-only mortgages
When you pay interest only, monthly repayments are financially more digestible. But you’ll have to start paying off the mortgage at some point.
Unless house prices head upwards, you’re not building up equity in your home. The risk is that if property prices fall, yours will be worth less than what you paid for it. If you have to sell, you could actually end up deeper in debt.
**More info
**Financial planning sorted.org.nz;
NZ Mortgage Brokers Association nzmba.co.nz;
The Banking Ombudsman bankomb.org.nz
**TOP TIP
Fixed and floating interest rates have pros and cons. There’s no evidence that fixed or floating consistently produces the lowest interest costs. It comes down to what you are comfortable with – certainty or flexibility.**
KEEP INFORMED AT CONSUMER.ORG.NZ
Sue Chetwin CEO CONSUMER NZ
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