Now that you’ve got your loan approved here’s some simple tips for making sure you don’t fall into traps…
Structure, structure, structure
Setting up the correct structure at the beginning of the term of the loan is very important. Make sure you talk to your Solicitor & Accountant at this stage as you need to make sure that both the ownership and borrowing entities are correct to give
you the best tax advantages and/or asset protection.
Changing the structure after settlement can be costly.
Paying the loan off quickly
Always a good idea if you can. To do this make sure that you have a portion of your loan as a revolving credit so you can deposit extra whenever you like without penalty and withdraw again if you need to (discussed in my other Articles).
If you want to stick with a standard term loan for the whole debt then make sure that you leave the maximum term in place. For example, you can have up to 30 years to pay a mortgage off. If you have the cash-flow ability to pay the loan off over 15 years
it’s best not to make the term 15 years – leave it at 30 years but simply make the payments higher (which has the same result).
If you have a 15 year term and your income circumstances change, and you need to reduce your monthly payments (by changing it back to a longer term) when times aren’t quite as good, you’ll have to submit a brand new application with supporting information.
WHY? – when you increase the term of the loan you are, in effect, borrowing more money from the Bank as the interest you’ll end up paying is higher. The risk to them also goes up as they will hold your mortgage longer.
The same issues could arise if you are moving from Principal & Interest to Interest-only on a loan as well.
Fixing your Loan
Even the best Chief Economists will admit that rate forecasts often change as they are effected so much by unforeseen events. Fixing rates is a personal decision based on cash-flow, upcoming family events and income fluctuations. Splitting your mortgage
into more than one fixed rate may help balance your debt against changes in market and your personal position.
Whether it’s the first time you are fixing or the twentieth make sure you always talk to your Financial Advisor to make sure that you get the latest market predictions and to let them know if you have anything planned which may affect cashflow over the
short to medium term.
The above all reinforce the fact that you should get advice from finance professionals throughout the life of your mortgage.
Never be afraid to ask questions or seek advice.