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New Zealand Investment property

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Types of mortgage

Principal & Interest – As the name suggest you are repaying both the principal borrower and the interest charged. This is the most common type of loan taken out for an owner-occupied purchaser. The term can be anywhere up to 30 years with payments able to be made weekly, fortnightly or monthly to suit. As a general rule try to pay as much as you can in the early years of your loan (over & above your standard amount) as it will save you thousands in interest and reduce the overall term of your loan substantially!

Interest Only – As the name suggests you are only paying the interest being charge to you. While the repayments will be substantially less than a principal & interest loan this is not advisable to owner-occupied purchasers as you will still owe the original amount of the loan borrowed at the end of the term.

Amortising Line of Credit – This type of loan is worth exploring. They allow you to use your mortgage as a bank account whereby all income is direct credited into the mortgage. You use a credit card (with up to 45 days interest free) to put all household expenses on and then repay that credit card at the end of each month with a direct credit from your mortgage to clear the credit card in full, (thus no interest is charged on your credit card), while your salary has sat off your mortgage all month. Ask for Mortgage advisor for further explanation and while this may sound like a good option it tends to only work well for people with surplus monthly income and spending discipline. For the wrong people they are the worst type of loan.

Fixed Interest Rates – You can choose to fix the interest rate on your mortgage for 6 months to 5 years at a time. The upside is that repayments cannot go up on you during the fixed interest rate period. The downside is that if interest rates go down and you have fixed your rate for a longer period of time you are stuck paying the higher rate, while market variable rates are available at a lower cost, accordingly be aware that there are some risks associated with fixing your rate for too long.

Variable Interest Rates – This means that your interest rate can go up or down as the economy changes. The downside is that rates can go upwards increasing your repayments. The upside is the reverse, if interest rates fall so does your repayments. If on a variable rate you can ask to change to a fixed rate at any time with little to no cost. Ask your Mortgage Adviser for their advice at the time of applying for your mortgage.

Combo Loans – You can also ask to have some of your mortgage on a fixed interest rate and some on a variable rate which can give you the best of both worlds mentioned above. 

Source: www.kmm.net.nz