What are my options, when structuring my mortgage?

What are my options, when structuring my mortgage?

This blog is here to give you some ideas of different mortgage types to understand the different mortgages available in the market.

All Mortgages are definitely not the same!

When Looking at Mortgage In New Zealand the most common type you will hear of the P&I loan which is known as Principal and interest.

However there are four Mortgage Styles that we use in New Zealand;

1. Principal and Interest – most common
2. Interest Only
3. Revolving Credits (reducing/permanent)
4. Straight-Line – less common

1: Principal and Interest (P&I)

A principal and interest loan is set for a certain term (often 30 years) with a repayment weekly, fortnightly or monthly designed to have all principal and interest on the mortgage paid off by the end of the term.

As per googles (www.google.co.nz) description “the principal is the money used to pay down the balance of the loan and the interest is the charge aid to the lender for the privilege of borrowing the money.”

Use our calculator through the following link in order to calculate what your repayments would be visit www.interest.co.nz to see the current interest rates in New Zealand

2: Interest Only

An interest only loan is set so you only make interest payments on the principal amount of ending.

For example: If you borrowed $400,000 this becomes the principal and the chosen interest rate was 5% p.a. your repayments would be $20,000 p.a. which would be $1,699 per month
(Based off a 31 day month).

The points to note are;

• Often Interest only loans are only accepted for a period of 5-10 years or even less before there would be the expectation that these are moved to principal and interest repayments.

• Over the interest only period you would have only paid interest unless you have made lump sum payments over the duration of the interest only period

• And finally, you can have an interest only loan on a fixed or floating interest rate. (read further down to understand fixed/floating interest rates)

3: Revolving Credits

Reducing

A Reducing Revolving credit limit works in 2 methods

First Method;
You pay the interest on the daily accrued balance owing each month, as well as the limit reducing each month.

Second Method;
A permanent Revolving credit limit is where the limit remains in place permanently and you purely pay the interest each month on the daily balance owing.

4: Straight-Line

Straight line is a great loan designed for high income/commission paid earners to match their income styles.

How the Straight Line loan works is it allows you to pay a weekly amount off the principal of the loan and a monthly interest payment, unlike principal and interest where in the first years only a small amount of principal is repaid and a large amount of interest.

Interest Rate Style;

• Fixed
• Floating
• Variable

Fixed;

A fixed interest rate mortgage is where the agreed interest rate is locked for a period of time. This generally means if market rates go up or down that you are locked into the agreed interest rate.

Floating;

Floating interest rates move up and down according to the market and is not guaranteed.

Variable;

A variable interest rate moves up and down according to the market rate and is not guaranteed.