Money Smart

Fix or float and for how long? A question many property owners ask themselves quite a few times. At present, I am asking myself the same question because by some stroke of good design ( pat on the back) all my 3 mortgage fixed terms are now finished and I am looking at re fixing them.

One option is to put them with different banks to split the risk but also to take advantage of any offers of fringe benefits such as overseas trips, cash back, fly buys or a TV. The downside is the lawyer fees when changing the mortgagee bank on paper,  plus for some keeping up with 3 different banks may be too much.

On the other hand, I can offer all 3 mortgages as one to different banks and get them to offer me competitive interest rates and any other deals to get it.

The next dilemma would be on how long to refix the mortgages for, too long and I may not be able to access the equity when I need to buy another property, too short and I may have to refix at a higher rate next time.

A good idea would be to split a big mortgage into smaller chunks say for example a $175k mortgage with ASB can be split into 3 mortgages of $25k for 1year @4.69%, $50K for 2 years @4.79%  and $100k for 4years @ 5.29%. Than if after one year if interest rates rise to their former average of 7% at least the majority of your mortgage would still be on a better rate. Moreover some banks allow a lump sum payment every year without charging extra repayment fees such as BNZ which allows up to 5% every year. So on a $175K mortgage that’s $8750 extra payment every year.

But for myself, I do it a little bit differently. I look at what my plans are for the coming few years and base my mortgage terms on that. For instance, my smallest mortgage left is around $15K (Yippee!). It is absolutely doable to pay off this amount from rent and income in a year but in the coming year there is a wedding in the family planned (not mine!) plus I want to get rid of some personal loan debt that I initially took for repairs on my investment properties (interest is tax deductible) as well as due to new laws some insulation work required on the properties. So the smallest mortgage would have to be on a 2 year fixed term, next one, around $80K for 3years and the biggest one for 4 years.

If you have a different system please do share your ideas……..