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PostPosted: Thu Jun 07, 2018 10:26 pm 
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So, I'm a month or so away from getting my house built, which will obviously have a mortgage attached. I do have a house back in the UK, but when I bought that, I was young(ish), so just did what my bank told me. This time round however I have access to advice, both sought and unsolicited. The advice given seems to break down into 3 basic options:

- Extreme option 1: Pay off the mortgage as fast as you can - based on the fact that the longer you pay it off, the more money you hand over to the bank. If you pay it off sooner you save yourself hundred's of thousands by the end. Down side is you don't have much (if any) money left over to have a reasonable lifestyle during that period.

- Middle of the road option: Just get the best rates you can and pay it off as normal: If you can afford it, why worry? Use what money you have left to have a decent life.

- Extreme Option 2: Only idiots worry about paying off the mortgage in the short term - this is at the other end of the extreme of the first option and is based on the fact that while everything else is affected by inflation, your mortgage will always stay the same. Therefore, add in the fact that the one thing they aren't making anymore is land, and you just wait for you house to increase in value over 10-15 years, release the equity to buy a rental, wait for that to increase in value (people talk about house prices doubling every 10-15 years), and then sell it and pay down a chunk of the original mortgage. Obvious bonus of this option is that you pay down the original mortgage at a low speed (even going interest only), and have a really good standard of living.

So, what do the financial geniuses that frequent this bored think?


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PostPosted: Thu Jun 07, 2018 10:31 pm 
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I just bought an apartment Jeff and I'm going with Extreme Option 1.

I have a 23 year variable at 3.5%. I want to have it all payed off by my mid 50s.


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PostPosted: Thu Jun 07, 2018 10:33 pm 
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I’mno financial genius, but if you use an offset account you can get the benefits of option 1 whilst having a large reserve should you find yourself needing it at some point in the next 25 years. Obviously not a brave solution that leads to you making your fortune or anything.


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PostPosted: Thu Jun 07, 2018 10:34 pm 
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iarmhiman wrote:
I just bought an apartment Jeff and I'm going with Extreme Option 1.

I have a 23 year variable at 3.5%. I want to have it all payed off by my mid 50s.


Isn’t that more option 2?


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PostPosted: Thu Jun 07, 2018 10:35 pm 
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MaccTaff wrote:
iarmhiman wrote:
I just bought an apartment Jeff and I'm going with Extreme Option 1.

I have a 23 year variable at 3.5%. I want to have it all payed off by my mid 50s.


Isn’t that more option 2?


I'll only pay off more if I have the cash at the time. I'm going to rent a room which is tax free up to €14,000 a year. That should help


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PostPosted: Thu Jun 07, 2018 10:36 pm 
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iarmhiman wrote:
I just bought an apartment Jeff and I'm going with Extreme Option 1.

I have a 23 year variable at 3.5%. I want to have it all payed off by my mid 50s.


Do you have a family? My issue is, looking at it pragmatically as much as emotionally, is that I have 2 kids, who I've got for the next 14-18 years (one is 4 and the other newborn, and I plan on shipping both off to Uni when they finish school). I want to give them the best childhood I can, and simply put, I don't earn enough to go hard at a mortgage, while also doing the things I want (mainly things like experiences, like taking them on holiday etc. It's expensive as fudge to get anywhere from NZ). I also want to have some cash left over for the things I like and want (and similar with the missus).

I understand the principle of that option, I just don't see how it works if you have a family and you want to have a decent standard of living.

The opposite to that is, I don't want to have lived a good life, only to find I'm out of pocket come my pensioner years.


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PostPosted: Thu Jun 07, 2018 10:36 pm 
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If you can make a higher return on savings than the interest rate you pay on your mortgage (after allowing for whatever tax / tax relief is applicable) then you would ultimately be financially better off to pay it off slowly and invest the excess.

Which is exactly what I didn't do as I love the security of not having a mortgage.


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PostPosted: Thu Jun 07, 2018 10:49 pm 
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Jeff the Bear wrote:
iarmhiman wrote:
I just bought an apartment Jeff and I'm going with Extreme Option 1.

I have a 23 year variable at 3.5%. I want to have it all payed off by my mid 50s.


Do you have a family? My issue is, looking at it pragmatically as much as emotionally, is that I have 2 kids, who I've got for the next 14-18 years (one is 4 and the other newborn, and I plan on shipping both off to Uni when they finish school). I want to give them the best childhood I can, and simply put, I don't earn enough to go hard at a mortgage, while also doing the things I want (mainly things like experiences, like taking them on holiday etc. It's expensive as fudge to get anywhere from NZ). I also want to have some cash left over for the things I like and want (and similar with the missus).

I understand the principle of that option, I just don't see how it works if you have a family and you want to have a decent standard of living.

The opposite to that is, I don't want to have lived a good life, only to find I'm out of pocket come my pensioner years.

Also a rainy day fund is worth having. You might be comfortable with your income now, but you have to make an allowance for the economy going tits up or something else happening in your life to stretch your finances.


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PostPosted: Thu Jun 07, 2018 10:50 pm 
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Fix at these low rates for as long as possible, if you can get 10year fixed take it. If not a repayment mortgage then obviously you'll need life insurance and a saving scheme, the biggest issue right now is how to get savings secure and yielding.

If you were in the UK I'd advise an equity invested ISA.


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PostPosted: Thu Jun 07, 2018 10:56 pm 
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For my many sins, I am a formally trained financial advisor (was)
Jeff, an you give any more info as to your age, attitude to risk etc ?
The more info you give, the better (for you) advice you will get.

Interest rates in the U.K. are still very low, so no real rush to pay off any mortgage really - you could even (like I did) borrow more and buy yourself a couple of rental places within a year or two of releasing equity, rather than waiting ten years.


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PostPosted: Thu Jun 07, 2018 11:04 pm 
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backrow wrote:
For my many sins, I am a formally trained financial advisor (was)
Jeff, an you give any more info as to your age, attitude to risk etc ?
The more info you give, the better (for you) advice you will get.

Interest rates in the U.K. are still very low, so no real rush to pay off any mortgage really - you could even (like I did) borrow more and buy yourself a couple of rental places within a year or two of releasing equity, rather than waiting ten years.


First of all, I'm in NZ, so there's that (interest rate are a little higher here, but not a lot, averaging at about 5% I'd say). I'm 34, the missus is 35...and I'd say I'm fairly middle of the road when it comes to risk.


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PostPosted: Thu Jun 07, 2018 11:05 pm 
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Cash
#tradesmen


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PostPosted: Thu Jun 07, 2018 11:08 pm 
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Jeff the Bear wrote:
backrow wrote:
For my many sins, I am a formally trained financial advisor (was)
Jeff, an you give any more info as to your age, attitude to risk etc ?
The more info you give, the better (for you) advice you will get.

Interest rates in the U.K. are still very low, so no real rush to pay off any mortgage really - you could even (like I did) borrow more and buy yourself a couple of rental places within a year or two of releasing equity, rather than waiting ten years.


First of all, I'm in NZ, so there's that (interest rate are a little higher here, but not a lot, averaging at about 5% I'd say). I'm 34, the missus is 35...and I'd say I'm fairly middle of the road when it comes to risk.


Viewing 5% as only being a "little" higher at 5% indicates a repayment mortgage over a short period would be best for you.

In reality payments in the UK would be halve that 5% currently.


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PostPosted: Thu Jun 07, 2018 11:15 pm 
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backrow wrote:
For my many sins, I am a formally trained financial advisor (was)
Jeff, an you give any more info as to your age, attitude to risk etc ?
The more info you give, the better (for you) advice you will get.

Interest rates in the U.K. are still very low, so no real rush to pay off any mortgage really - you could even (like I did) borrow more and buy yourself a couple of rental places within a year or two of releasing equity, rather than waiting ten years.


So how long are interest rates going to stay low then?

I’d like to use your licensed advice to dabble in some futures.


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PostPosted: Thu Jun 07, 2018 11:38 pm 
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Option 3. A mortgage is the lowest interest you're ever going to borrow.


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PostPosted: Thu Jun 07, 2018 11:41 pm 
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wow, house prices guaranteed to double in 10-15 years :o

Image


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PostPosted: Thu Jun 07, 2018 11:58 pm 
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Akkerman wrote:
wow, house prices guaranteed to double in 10-15 years :o

Image


Well, that was one of the things I'd hope some clued up type would go "Yeah, that sounds about right", or "No, you've been fed a load of bullshit".

From my brief check, it suggests that house prices in NZ in most urban areas have managed about 7.5% pa for the last few decades (although I can't find any data for post GFC prices). If that is the case, then yes, prices on property would be doubling every 10 years or so.

My ultimate worry is that, surely that sort of shit can't carry on? And so basing my entire financial future on it seems risky.


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PostPosted: Fri Jun 08, 2018 12:11 am 
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Jeff the Bear wrote:
backrow wrote:
For my many sins, I am a formally trained financial advisor (was)
Jeff, an you give any more info as to your age, attitude to risk etc ?
The more info you give, the better (for you) advice you will get.

Interest rates in the U.K. are still very low, so no real rush to pay off any mortgage really - you could even (like I did) borrow more and buy yourself a couple of rental places within a year or two of releasing equity, rather than waiting ten years.


First of all, I'm in NZ, so there's that (interest rate are a little higher here, but not a lot, averaging at about 5% I'd say). I'm 34, the missus is 35...and I'd say I'm fairly middle of the road when it comes to risk.


Hmm that’s about double uk rates matey, quite a lot higher really !

Will write more tomorrow when I’m not on the phone


Last edited by backrow on Fri Jun 08, 2018 12:18 am, edited 1 time in total.

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PostPosted: Fri Jun 08, 2018 12:17 am 
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shanky wrote:
backrow wrote:
For my many sins, I am a formally trained financial advisor (was)
Jeff, an you give any more info as to your age, attitude to risk etc ?
The more info you give, the better (for you) advice you will get.

Interest rates in the U.K. are still very low, so no real rush to pay off any mortgage really - you could even (like I did) borrow more and buy yourself a couple of rental places within a year or two of releasing equity, rather than waiting ten years.


So how long are interest rates going to stay low then?

I’d like to use your licensed advice to dabble in some futures.


Nobody knows for sure, anyone who claims to know that is a liar


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PostPosted: Fri Jun 08, 2018 12:22 am 
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Those seem like very narrow options. What about fixed vs floating splits or revolving credit? Perhaps some of the financial gurus around here may have some thoughts on those.

Having introduced other options, I am in the middle of the road camp. We finished a new build about six months ago and while the mortgage is much bigger than the one we had before, we made the call that we wouldn't go crazy with payments. We have young kids too and this way we get the lifestyle bonus of a much nicer place, plus we aren't missing holidays etc while they are growing up.


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PostPosted: Fri Jun 08, 2018 12:32 am 
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Ask Globus. He used to do this as a job.


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PostPosted: Fri Jun 08, 2018 12:32 am 
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J Man wrote:
Ask Globus. He used to do this as a job.

Only for Stephen Hawkins


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PostPosted: Fri Jun 08, 2018 12:36 am 
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You have young kids in your mid 30s. One way or another you will be providing for them for a decent period. Personally, I'd advocate getting the house paid asap so you have that security for you and your family, and you can then start using the spare cash to make more, or have fun.

Your house is where you and your family live, stop thinking of it as an investment. Obviously keep one eye on the investment, buy in a decent area etc, but primarily think of it as the family home and the investment side is a bonus.

Work out what you would regard as a decent standard of living (and be realistic) and then how much it will cost (again be realistic). Then once you have got over the surprise at how much spare cash money this exercise says you should have but do not, do it again and be realistic. Make sure you plan over several years so you include the rare but expensive items you need to fund like a replacement car.

Set yourself a budget and be disciplined. Hopefully you will have some spare cash once the bills are paid. Start building up a nest egg and keep it invested in something liquid but gives reasonable returns. Again, don't mess with this as it is what will save you if the shit hits the fan.

Once you have built up your nest egg, start putting the money that was going into the nest egg into additional mortgage payments.

Treat yourselves and your kids occasionally, life is not a hair shirt.

Regularly review where your cash is going, and adjust as necessary.

Once the house is paid off, you have the security to be more adventurous.

I appreciate that this is a low risk strategy, but as far as I am concerned the priority is security for the family, and nothing brings that faster than owning your home. Once you have that security you take more chances.

Of course, if are more risk inclined, ignore the above.


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PostPosted: Fri Jun 08, 2018 12:39 am 
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Paying off your mortgage as early as you can, within reason, is the best financial road you can take.

The construction industry is traditionally cyclical, and the approach I took was to pay off more (say double) in good years, reverting back to standard repayments when times weren't so hot. Also, any lump sum you get through work, use at least a part of it to pay off mortgage debt.

Owning your house mortgage free at 50 will simplify the rest of your life enormously.


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PostPosted: Fri Jun 08, 2018 12:43 am 
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Don't you get penalised for contributing extra to your mortgage? I thought the banks discouraged you from doing it as they lose out?


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PostPosted: Fri Jun 08, 2018 12:45 am 
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J Man wrote:
Don't you get penalised for contributing extra to your mortgage? I thought the banks discouraged you from doing it as they lose out?

Not on my mortgage contract in Ireland - can't speak about anywhere else.


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PostPosted: Fri Jun 08, 2018 12:58 am 
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If you can, consider splitting your mortgage.

I have approximately $30,000 on a BNZ 'Total Money' floating rate loan (about 5.4%) and about $100,000 fixed for two years on about 4.6%. These figures are all off the top of my head and not the advertised ones. I found you can get them to shave another .25 points off the advertised rate.

The thing is - with the Total Money, all the money I have in my current account, plus a bit I have aside for rainy days, vet bills, holiday, or whatever, is actually set against my mortgage. So for example, if I have a total of $10,000 across those accounts I'm only paying interest on $20,000 of that mortgage, which cuts my interest costs. No, I'm not 'earning' interest on that 10 thou but I am avoiding paying interest on that amount, which to me is much more valuable.

It means I have quick access to extra money when I need it, without having to go to the bank to ask for a top-up, and as soon as my pay goes in for that fortnight it is bringing down my interest costs - until I start forking out on bills etc. Same goes for any extra bits of cash. They can sit in my current account or an offset account until needed.

If you're really disciplined you can also use the free credit period on your credit card to your advantage with this sort of mortgage - but you've got to be disciplined and pay it off in full each month.

Admittedly I'm at the other end of working life from you with my kids (largely) off my hands which does make things a little simpler.


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PostPosted: Fri Jun 08, 2018 1:01 am 
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backrow wrote:
shanky wrote:
backrow wrote:
For my many sins, I am a formally trained financial advisor (was)
Jeff, an you give any more info as to your age, attitude to risk etc ?
The more info you give, the better (for you) advice you will get.

Interest rates in the U.K. are still very low, so no real rush to pay off any mortgage really - you could even (like I did) borrow more and buy yourself a couple of rental places within a year or two of releasing equity, rather than waiting ten years.


So how long are interest rates going to stay low then?

I’d like to use your licensed advice to dabble in some futures.


Nobody knows for sure, anyone who claims to know that is a liar


OK. It’s just that you were advising him to load up on retail debt in order to concentrate on one asset class. All in a time of interest rate uncertainty. I naturally assumed you knew something the rest of us didn’t.


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PostPosted: Fri Jun 08, 2018 3:15 am 
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I presume NZ is like OZ in that everyone advises you to try and pay it off in 5 years?

I took option 2 - I have an offset account to ameliorate the interest and put all our savings in it as the interest is tax free.

Helps depreciate the interest on the loan and you always have cash as a backup


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PostPosted: Fri Jun 08, 2018 3:29 am 
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I’ve left the finance industry after 12 years and the very worst option you’ll can do is just leave it in the bank’s hands. It’s not hard to payoff a mortgage in 20years vs the standard 30years and the savings are substantial. Have a look at NZHL, there are probably the best in NZ for streamlining a mortgage.


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PostPosted: Fri Jun 08, 2018 4:23 am 
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It comes down to your risk profile. Most investments outside of banks will return higher than current mortgage rates so you are actually better off using any repayment amount above the minimum to invest in property or shares instead. Of course it’s riskier than paying off a mortgage and you generally need a decent sum of money to start investing (especially in property).

If you choose the risky option, you need to find the worst case scenario (investments going tits up and mortgage rates increasing) and be sure you can handle that. If you can’t, then it’s probably not for you.

I’m in a similar boat and I’m following the risky path but I did a lot of research to be comfortable with my choice.


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PostPosted: Fri Jun 08, 2018 6:17 am 
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JtB, is your UK place paid off, or at least do you have significant equity in that?

If so, you might want to consider borrowing (more) against that to part fund your NZ purchase to take advantage of the lower rates. Your uk banker might be happy with an annual lump sum interest that you could transfer back. Obviously you'd have to do the sums as to whether that works with commission etc, but using transferwise etc could make it economical.


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PostPosted: Fri Jun 08, 2018 6:54 am 
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Zakar wrote:
JtB, is your UK place paid off, or at least do you have significant equity in that?

If so, you might want to consider borrowing (more) against that to part fund your NZ purchase to take advantage of the lower rates. Your uk banker might be happy with an annual lump sum interest that you could transfer back. Obviously you'd have to do the sums as to whether that works with commission etc, but using transferwise etc could make it economical.

That's risky because you need to be very sure of your foreign exchange rate. They swing far more than the few % you could save there.


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PostPosted: Fri Jun 08, 2018 7:07 am 
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I have bought a few over the years, still haven't paid any of them off, but a combination of inflation/housing market increases and decent income, positively geared streams from the investments means I could sell a couple and be debt free

I am a fan of someone else paying off my home loans


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PostPosted: Fri Jun 08, 2018 7:21 am 
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thor wrote:
I’ve left the finance industry after 12 years and the very worst option you’ll can do is just leave it in the bank’s hands. It’s not hard to payoff a mortgage in 20years vs the standard 30years and the savings are substantial. Have a look at NZHL, there are probably the best in NZ for streamlining a mortgage.


Erm no they aren't. They're good at sucking people into opting for the revolving credit rainbows and unicorns scenarios though granted.

Personally Jeff I think you're probably best fixing for short 1 or 2 yr terms at the mo as rates are at near historical lows for NZ.

Put a smaller portion on an offset type product through which you can offset any savings/rainy day money. If you have decent surpluses at the end of any fixed term you can make lump sum reductions.

Also it's worth considering using a broker. They'll play the banks off against each other and you'll generally get the best rates through broker hubs. Also most banks offer cash incentives to win your business. They'll tie you to said bank for 2-4 years. Take these into account, bang them straight onto the floating portion and when the period is up go shopping and repeat process. Just make sure you are up to speed with all the conditions including clawbacks of incentive payments and break fees if you need to opt out of your fixed term.

I guess this is a middle of the road type scenario but just keeping on top of the market and having an awareness of the various different products and offerings can save you years and a lot of money.

Oh and ALWAYS pay more than the minimum repayment.


Last edited by RuggaBugga on Fri Jun 08, 2018 7:27 am, edited 2 times in total.

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PostPosted: Fri Jun 08, 2018 7:24 am 
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Flockwitt wrote:
Zakar wrote:
JtB, is your UK place paid off, or at least do you have significant equity in that?

If so, you might want to consider borrowing (more) against that to part fund your NZ purchase to take advantage of the lower rates. Your uk banker might be happy with an annual lump sum interest that you could transfer back. Obviously you'd have to do the sums as to whether that works with commission etc, but using transferwise etc could make it economical.

That's risky because you need to be very sure of your foreign exchange rate. They swing far more than the few % you could save there.


Absolutely, an important point that I forgot to mention :thumbup:


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PostPosted: Fri Jun 08, 2018 7:53 am 
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camroc1 wrote:
Paying off your mortgage as early as you can, within reason, is the best financial road you can take.

The construction industry is traditionally cyclical, and the approach I took was to pay off more (say double) in good years, reverting back to standard repayments when times weren't so hot. Also, any lump sum you get through work, use at least a part of it to pay off mortgage debt.

Owning your house mortgage free at 50 will simplify the rest of your life enormously.


I'm with this one - as long as you secure that you can pay off chunks of the mortgage without penalty, then go with an option 2 but using any excess that you have (bonuses, unexpected windfalls, months where you didn't spend much on other stuff) to go into the mortgage.

And with a 5% mortgage, I'd be even more keen to pay off the capital. Paying off capital lowers interest payments, and that excess can then go back into paying capital.

My interest rate is 1.7% (and in the Netherlands payment on mortgage interest is also tax free) so I should probably be putting excess into a high-interest savings account and earning more, but I'm so risk averse and keen on security that I'm still using it to erase the mortgage debt. So my financial advice may not be any good...


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PostPosted: Fri Jun 08, 2018 8:00 am 
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4071 wrote:
camroc1 wrote:
Paying off your mortgage as early as you can, within reason, is the best financial road you can take.

The construction industry is traditionally cyclical, and the approach I took was to pay off more (say double) in good years, reverting back to standard repayments when times weren't so hot. Also, any lump sum you get through work, use at least a part of it to pay off mortgage debt.

Owning your house mortgage free at 50 will simplify the rest of your life enormously.


I'm with this one - as long as you secure that you can pay off chunks of the mortgage without penalty, then go with an option 2 but using any excess that you have (bonuses, unexpected windfalls, months where you didn't spend much on other stuff) to go into the mortgage.

And with a 5% mortgage, I'd be even more keen to pay off the capital. Paying off capital lowers interest payments, and that excess can then go back into paying capital.

My interest rate is 1.7% (and in the Netherlands payment on mortgage interest is also tax free) so I should probably be putting excess into a high-interest savings account and earning more, but I'm so risk averse and keen on security that I'm still using it to erase the mortgage debt. So my financial advice may not be any good...



The Netherlands has bank account paying more than 1.7% after tax ?


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PostPosted: Fri Jun 08, 2018 8:06 am 
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bimboman wrote:
4071 wrote:
camroc1 wrote:
Paying off your mortgage as early as you can, within reason, is the best financial road you can take.

The construction industry is traditionally cyclical, and the approach I took was to pay off more (say double) in good years, reverting back to standard repayments when times weren't so hot. Also, any lump sum you get through work, use at least a part of it to pay off mortgage debt.

Owning your house mortgage free at 50 will simplify the rest of your life enormously.


I'm with this one - as long as you secure that you can pay off chunks of the mortgage without penalty, then go with an option 2 but using any excess that you have (bonuses, unexpected windfalls, months where you didn't spend much on other stuff) to go into the mortgage.

And with a 5% mortgage, I'd be even more keen to pay off the capital. Paying off capital lowers interest payments, and that excess can then go back into paying capital.

My interest rate is 1.7% (and in the Netherlands payment on mortgage interest is also tax free) so I should probably be putting excess into a high-interest savings account and earning more, but I'm so risk averse and keen on security that I'm still using it to erase the mortgage debt. So my financial advice may not be any good...



The Netherlands has bank account paying more than 1.7% after tax ?


No - I meant investing rather than a savings account. There's a few 'high' interest options about. Though 'high' is still under Jeff's 5% mortgage rate.


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PostPosted: Fri Jun 08, 2018 8:28 am 
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Another factor is bank of mum and dad- will either of them leave you money?


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