Huge OCR cut and a potential recessionary period

Should you panic?

No, absolutely not. Panic means: sudden uncontrollable fear or anxiety, often causing wildly unthinking behaviour. At times like this, it is crucial to think before acting and prepare in a way that minimises your anxiety. Sometimes recessionary periods last days or weeks, in this case, maybe much longer – no one knows. Watching these global events play out day by day is prudent, but preparing your personal financials makes sense just in case. 

Preparations

To fully prepare you may consider doing more than ensure your mortgage is on a low-interest rate. Check out the series on restructuring to understand what options you have.

Astute people are preparing, depending on their life stage, incomes and aspirations these are the typical goals:

  1. Lock rates for security – minimise uncertainty and anxiety
  2. Decrease fixed commitments – to protect cashflow
  3. Increase borrowing power – ensure you have lending available to buy more property

What are you trying to achieve? Minimise uncertainty to ‘batten down the hatches’ while there is global uncertainty? Ensure you are able to buy property as you are expecting cheap deals to become available? Decrease all expenses because you are expecting a drop in income? 

Spend some time thinking about what you would like to achieve. Talk through these options and scenarios with your close friends and partner. Call a mortgage adviser to learn how we can help restructure your situation to achieve your goals. 

Lock rates for security – minimise uncertainty and anxiety

At any point, you can fix your interest rate for a number of years. If you have a short term remaining on your fixed term mortgage it may be prudent to break and refix or refinance as a part of ensuring you have a rate you are happy committing to for the foreseeable future. Get a free ‘break and refix analysis’ prepared by our team, start the process by taking the mortgage snapshot

Decrease fixed commitments – to protect cashflow

When restructuring your mortgage, you have options to minimise your repayments, three common options are: 

  1. Extending your mortgage term, this dramatically decreases required payments.
  2. Switching a portion of your lending to interest-only repayments (usually this is for investment properties only). 
  3. Negotiating a lower interest rate, we can show you if you are leaving money on the table by paying a higher interest rate than others. 

Increase borrowing power – ensure you have lending available to buy more property

The trick to getting lending is getting it set up before you need it. If you think you are going to be looking for cheap property deals it is best to ensure your portfolio is correctly set up now – meaning you can jump on any deals you find while other bidders are still trying to organise finance. 

How do I go about this?

You have two options, one restructure at your current bank, or refinance to another bank. You can call your banker to organise the first one, another banker to organise the second one. Or we can handle everything for you – for free – whilst offering top mortgage advice. 

After helping many investors switch banks (for good reasons), the level of variation between banks continues to amaze us, but the thing is the banks are not allowed to collude. It’s like Air NZ and Qantas competing on flights between Auckland and Sydney, month to month the price leader will change, as will the timing of flights so you need to check often if you’re a frequent flyer who is price sensitive. It would be silly to pay $500 more for a ticket through one company than the other if the end result is the same…

At mortgagehq, we talk with bankers, investors and homeowners daily. Take the mortgage snapshot as a starting point or talk with your existing mortgage broker/adviser for some options. To start your process email andrew@mhq.co.nz

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Timmy Brown

About the author

mortgagehq is a mortgage advisory firm helping property investors and first home buyers secure the best finance options. Their mortgage advice will help you understand mortgage structures, products and tactics to help you achieve your financial goals.