Types or Mortgages:
Maximum Mortgage Term
The maximum mortgage term is generally 20 years for mortgages over 80% of the purchase price and 30 years for mortgages under 80%.
Frequency
Most banks allow fortnightly and monthly mortgage repayments. The best idea is to tie the mortgage frequency in with how often you are paid. There is an urban myth peddled by charlatans that you pay your mortgage off faster by paying fortnightly.
Interest-Only Mortgages
Interest-only terms can be up to 5 or 10 years in length depending on the lender. Typically this option is only available to mortgages under 80% of the property value or purchase price.
Fixed Mortgage
Fixed rate mortgages provide certainty. You have a fixed repayment amount for a fixed term of between 1 and 5 years. Relative to floating you will pay more for a fixed rate when rates are expected to go up, and pay less when rates are expected to fall. If you repay a fixed rate early (i.e. sell the house) then you need to be aware of early repayment fees.
Capped Mortgage
Not common in NZ and generally an inferior over complicated mortgage. Essentially you get a floating rate that is capped in the event that rates go up.
Floating Mortgage
Floating rate mortgages provide more flexibility. The rate can change at any time but is closely tied to the Official Cash Rate.
Added Flexibility
- Pay your mortgage off as fast as you like and whenever you like (at no cost)
- Easily redraw funds if you have already repaid more than you needed to
Revolving Credit
This is essentially an overdraft on your transaction account where the overdraft is at mortgage rates. There are two main benefits:
- It is better to throw all of your savings at the mortgage and have undrawn funds in a revolving credit.
- Gives you easy access to funds and can smooth your mortgage if your income is lumpy or irregular.
Some borrowers are put off because it is too easy to access funds. There are some simple ways to setup accounts that puts discipline around a revolving credit