Your choice – there’s never been a better time to repay debt or take on new debt

With historically low interest rates the cost of borrowing money is CHEAP! With expectations the Reserve Bank will cut the OCR further, and that interest rates will remain low for some time, there really has never been a better time to either repay debt, or take on new debt.

On the repay debt side – if you have a mortgage you should make the most of the low interest rates; maintain a repayment level that you have had in place with higher interest rates, so that you are paying off more principal. Or if you can manage to increase your repayments even more, with an
average loan size and loan term you could literally save tens of thousands in interest over the life of your loan, and the entire loan will be repaid years faster. If you are fixed into a high interest rate, talk to a mortgage broker to do a quick break even analysis of whether it’s in your favour right now to break out of your high fixed rate onto lower rates. You might be surprized!

On the take on more debt side – investment properties are hot right now, and the appetite has spread from Auckland throughout the country. With cheaper interest rates and high rental returns, owning a cash-flow positive investment property can be easier than you might imagine. Of course
there are deposit restrictions within Auckland, but elsewhere properties can be bought with as little as 5% deposit.

Thinking of renovating? Building costs are rising all the time, so undertaking your project sooner rather than later could save you a lot of money.

Do you have short term debts? Consolidating these into your mortgage means you’ll be paying low mortgage interest rates instead of expensive short term debt interest rates. This will ease the burden of your overall repayment obligations and you’ll have fewer accounts to keep track of. If you have been managing to meet these short term repayments easily, keep up with these repayment levels, so you pay more off your mortgage principal.

Everyone’s debt is different - you may relate to more than one of the above scenarios. Talk to a mortgage broker to help you structure your finances in the best possible way to suit your lifestyle. Here’s a recent example:

Clients had short term debt that was expensive and they were not making any headway to pay if off.

They had a small floating loan that would be repaid in 6 years. They had two larger loans with 19 years and 27 years to go, both fixed on high interest rates.

They could stay with their same bank, get a top up to pay off the short term debts and cover break costs, re-fix at a cheaper interest rate, and save $174 per month.

OR they could refinance to another bank, with a cash offer from the new bank covering break costs and lawyer fees and leaving $ in their pocket. Then structure their new loan (including enough to repay short term debts) over 20 years on a lower interest rate, saving them $85 per month – this
means they’d pay their whole loan off 7 years faster! Or structure their new loan over 25 years with a low interest rate saving them $376 per month!