Awesome to see our adviser Neville Modlin giving his insights in The New Zealand Herald this weekend! It’s incredibly exciting getting the opportunity to share key information to Kiwi homeowners “Playing the Rates Game.”
Link to the full NZ Herald Article written by Diana Clement 🔗 https://www.nzherald.co.nz/business/mortgage-rates-are-falling-but-should-you-lower-your-repayments-diana-clement/VVJYBI3HN5EEBNK27LC4CMWHNA/
You can also find Neville's commentary below:
"With mortgage rates falling, homeowners might be tempted to breathe a financial sigh of relief, and revel in lower repayments. Financially, it makes sense, if possible, to keep paying the same amount you've grown used to.
Over the past three and a half years, mortgage repayments have really hurt many people. But most people have found ways to manage and stay afloat.
With these new financial skills honed, it's time to stop and think before just accepting the lower rates. Overpaying the mortgage directs the extra money to pay down the principal, which starts a snowball effect. The more principal you pay down, the lower the interest charges and the more principal that can be paid off. People who adopt this strategy often pay their mortgages off many years earlier than the 25- or 30-year term.
It's always a good idea to speak to your bank or a mortgage adviser first in case overpayments incur penalties, otherwise your current financial structure may cost you in the long run.
Mortgage adviser Neville Modlin, of The Lending Team, is recommending clients pause and consider their options.
Not all clients have the cash flow to keep their payments high. Those who do are well-positioned to pay down their mortgage faster. "If you can keep the repayments high and you can do that from a cash-flow perspective that's awesome. That's number one.
'Number two is that a lot of people are sitting with savings that aren't learning a good return." Offset mortgages can save those clients a considerable amount of money. Offset mortgages work by linking or holding your savings within the offset mortgage, which reduces the principal on which interest is being paid.
For example, if you have a $400,000 mortgage and $20,000 in savings, you can link the $20,000 to the mortgage, so you only pay interest on $380,000. The savings are still available if you need them, but in the meantime they are in effect earning a tax-free return at the mortgage interest rate. Some banks allow customers to link accounts from partners or children, not just their own savings.
Then the question of interest rate fixing arises. Not everyone can sleep at night if their mortgage rates aren't fixed. It might be better for those homeowners to fix their mortgages even if rates are falling.
Many of Modlin's clients whose existing fixed-rate mortgage periods are ending are simply sitting on the floating rate for now, hoping for even lower rates if they hold on. Floating rates fluctuate over time, but this option works for people who can cope with uncertainty.
They are betting that the Reserve Bank
of New Zealand will lower the official cash rate this month and again in the new year.
Modlin isn't entirely in that camp. "It's quite a dangerous game and I'm conservative," said Modlin. He recommends clients spread their risk and split their mortgage across six-and
12-month periods. Fixed rates allow for predictable monthly payments, which can be particularly useful if you have a fixed income or value financial certainty.
"That spreads the risk in this uncertain market to take advantage of potentially lower rates in six months." He added that 12-month rates were not bad currently and helped with certainty.
Is your fixed rate coming up for renewal?
Want to explore your new rate and mortgage structure options?
Complete our 2min contact form to work with Neville 🔗
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