Question: Should I get a 10 year fixed term mortgage?

You may have already heard that one of the banks recently launched a 10 year fixed rate. Many of my clients have asked me what my thoughts are around the 10 year fixed rate – so here you go! My opinion is that 10 years is a very long time and you need to consider the implications first before you take up an offer like that.

Unfortunately, most of us can’t predict how our lives will change in the next 10 years. Here’s but a small a list of the things that can happen:

  1. Get married or divorced
  2. Lose your job
  3. Immigrate to another country, or even a different part of New Zealand.
  4. Experience a financial crisis (whether through your own fault or economic conditions at that point in time).
  5. Kids needing financial help
  6. Developing an unforeseen medical condition

Just ask yourself what’s happened to you in the last 10 years? I bet there have been lots of life-changing events. There certainly have been plenty in mine! I got married, bought three properties, sold another (which I originally intended to keep until retirement), had two kids, moved from London to New Zealand – to name just a few!

So it’s important that you consider whether any of the above events (or anything else) could cause you to break your 10 year fixed term. If the wholesale market rates are lower at the time that you want to break your loan, then you could be faced with significant break fees. Really, you’d be surprised – even a 0.25 per cent change over an extended period could mean hefty break fees in the tens of thousands of dollars. Ouch!

Therefore my advice is to consider it carefully with your mortgage advisor and other trusted advisors before you make the decision.

If you have any questions about what I’ve discussed this month, just let me know.


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