WHAT YOU NEED TO KNOW ABOUT STRUCTURING YOUR HOME LOANS
I always say to my clients,
“Fix for you and not the market.”
Although a lot of us may not know what we are doing in 5 years’ time, we do have an idea of what we will be doing in the next 1-3 years.
As interest rates are something we don’t have control over, if you structure your lending based on what you think they'll do rather than your personal circumstances---you’re likely to be disappointed.
Should I fix or float and how much?
Personally, I prefer not to fix any lending for more than three years. It is too far out. Structuring your lending so that at least a portion of it is due for review every year, gives you options, as well as a level of comfort should your circumstances change unexpectedly.
This is why we will always ask, what do you have planned for the next few years? Children? New car? House upgrade? New job? ………… It’s not because we are nosy, the answer to all these questions are important as it affects how long we recommend you fix your loan for.
For example, if you purchase a home and borrow $300,000 the loan structure could potentially look like this:
$100,000 fixed for one year
$100,000 fixed for two years
$100,000 fixed for three years.
If you would like to make lump sum payments within the first year, we may amend that first portion and fix $70,000 while balance of $30,000 remains on floating. Yes, it does seem like you will have lots of loans, however ultimately the loan amount is the same and all repayments can still be deducted on the same day. This structure means you to be reviewing your lending every year (with the help of us) and every year we ask the same three basic questions:
1) Are you looking to sell within the next couple of years?
2) Can you make any lump sum payments?
3) Can you increase your repayments?
Your responses will affect the way we recommend you structure the portion of the loan that is up for review.
What about Home Loan products?
There are many home loan products out there in the market place. Two of these the Offset facility and Revolving Credit (flexi) facility are very popular or ‘on trend’ at the moment.
In our 70+ years of combined experience it’s rarely we see these used to our customers advantage. Unfortunately it’s generally the banks who end up getting the benefits from these i.e. you pay more in interest. Unless you are super vigilant and committed to tracking and reducing these facilities balances, it’s unlikely to be a good fit for you.
That’s not saying we don’t agree with them, not at all, they have their place but there is no point in setting something up if it causes you ongoing stress by you having to constantly monitor and reduce it. That’s not going to help anyone. Maybe it’s something to work towards further down the track rather than setting it up straight away.
The benefit of working with us to set up your home loans and managing it moving forward, is you won’t need to repeat yourself at each fixed rate review. I certainly know how frustrating that can be. We don’t just arrange your home loan and you never hear from us again. We go on the journey with you. If you are a new client or even someone that thinks their loan structure is not working for them. Give us a call, we are only too happy to chat.