You begrudgingly sold your life to the bank now what?
The first step in managing your mortgage is knowing when to hold them and when to fold them. Principally the driving factors for making a change to your mortgage are either interest rates or repayments. Ideally you want to assess this every one to two years or when one of four things happen:
1. The fixed rate loan term is about to end.
2. You’re sprung by a change in interest rates for your floating rate mortgage.
3. There’s a change in the horizon that could impact your finances in a significant way.
4. A big lump sum is on route.
Personally, I feel people get over excited about their ability to predict the future of interest rates when instead they should be thinking about which structure best suits their specific situation.
Here’s a few things you can do to sharpen up your mortgage matrimony:
1. Estimate The Consolidate-Incorporate all those pesky overpriced credit card and car loans into your mortgage to capitalise on the lower rates. Keeping in mind that if you don’t pay more now, you’ll pay more later so increase the repayments to match the increased debt.
2. Undo The Redo- Sometimes it makes sense to find a more appropriate lender or structure. You might want a floating fixed combination as it gives you the ability to pay off in lump sums as well as the reliability of fixed repayments. You also might find another lender is a better match for your situation. Whatever you decide, just be conscious their could be early repayment fees for a fixed rate loan, application fees to join the new lender and a legal/valuation bill to reassure the lender. Just like any business though they often bend over backwards to get your business.
3. Holiday Stowaway- Repayment holidays aka the sweep it under the rug approach are for the moments you’re really struggling. You can have a three-month break from your repayments just be mindful that the debt still compounds throughout so you’re living for today at the expense of tomorrow.
4. Forced Divorce- When the honeymoon ends what happens to your house? It’s often referred to as ‘negative equity’ where the amount you owe surpasses your home’s value. At first the bank might attempt what’s called a mortgagee sale where they sell your home to recoup the debt and pay you the profits. If that doesn’t fit the bill they’ll come after anyone who guaranteed the loan. Also, if the terms and conditions allow it, the bank might just take money straight from your account. It’s the old saying: “Banks will give you an umbrella when the suns out, but want it back when it rains.”
5. Insure For Sure-Some of the most heart-breaking stories I hear is when a loved one passes away and your left a mortgage you can no longer afford. Which as much as I hate to admit it, insurance, when done right, can change lives. So, consider income, home, trauma and life insurance in your property plan.
