Flex your finances
Brooke Reynolds of Rapson Loans and Finance explains how structuring your home loan to suit your lifestyle could save you thousands in interest and shave years off your mortgage.
Brooke Reynolds of Rapson Loans and Finance explains how structuring your home loan to suit your lifestyle could save you thousands in interest and shave years off your mortgage.
PHOTO Jahl Marshall
Securing the right home-loan structure for your lifestyle is important for achieving your financial goals. This decision requires a thoughtful conversation with your financial adviser, taking into account various factors such as your current and future affordability, interest-rate trends, long-term objectives, potential changes in your financial situation, and your spending habits.
The home-loan market offers a wide range of products designed to accommodate different financial circumstances. Among the most popular options are fixed-rate loans, which provide stability and predictability. These loans lock in an interest rate for a period ranging from six months to five years, allowing you to plan your repayments without worrying about fluctuations. With a fixed-rate loan, you can also make additional payments to build equity more quickly, and some lenders allow lump sum contributions of up to five percent of the loan balance.
Variable loans are excellent to work alongside a fixed loan or on their own to offer you flexibility, rapid repayment and reduction of interest paid. There are three types of variable loans, each offering unique advantages:
Revolving Credit: This is where you have part of your home loan on the floating rate. It acts as a transactional account with a credit limit, where interest is calculated only on the outstanding balance. It’s ideal for those who like easy access to funds and flexible repayments.
Floating-rate loans: These are independent loans that allow you to make lump-sum payments in addition to the minimum required payment at any time. This flexibility helps reduce your interest costs. Some floating-rate loans also offer the option to redraw funds, providing you with even more financial flexibility.
Offset loans: These clever structures link to your transaction and savings accounts, reducing interest by offsetting your loan balance against your account balances. This means that when your account balance matches your loan amount, your repayments contribute directly to the principal.
Your natural financial behaviours should guide your loan-structure choice. If you tend to spend leftover money, a fixed-rate loan with increased payments might help you manage interest more effectively. Savers who dislike frequent account transfers might prefer an offset loan. For those who enjoy actively managing their finances, revolving credit or floating rate options could be ideal. However, be aware that not all floating loans allow withdrawals, so it’s crucial to consult your financial adviser for specific details and recommendations tailored to your situation.
Your financial situation evolves, and so should your loan structure. Regular reviews with your adviser ensure your lending continues to meet your changing needs and goals. Remember, the ideal loan structure adapts to your lifestyle, not the other way around. By understanding your options and working closely with a financial expert, you can create a home-loan strategy that supports your goals and secures your financial future.
Well advised
When it comes to money matters, expert guidance is more important than ever in today's tough economy.
When it comes to money matters, expert guidance is more important than ever in today's tough economy.
photo Jahl Marshall
As a lender for more than 20 years, Brooke Reynolds has certainly worked her way up through the finance world. She started as a full-time casual teller and worked in almost every bank position imaginable. She then went on to work as a mobile mortgage lender and later studied conveyancing. Today, she has extensive, well-rounded knowledge of the whole banking process, not just lending, and owns half of Rapson Loans and Finance in Tauranga. Brooke loves using her valuable and vast wisdom to help others. Here, she tells us why a financial advisor is an important asset to have, and what to expect from them in terms of advice, knowledge and assistance.
Financial advisors are the go-between with individuals and the banks/lenders. They get to know you and understand your needs and then relay that information to the lenders. The relationship you form is important as the more they know their clients, the easier it is to achieve exactly what you want. Everyone has different needs − no two people are the same − and your adviser needs to be able to manage that and not take a ‘one fits all’ approach.
But can’t I just do that myself, you ask? Yes, absolutely you can. If you don’t mind making the appointments with lenders, taking time off work and then following up with further information and research. It all costs you time and effort, and then if they say no, what do you do? Advisers are able to go to multiple lenders and will be able to tell from the conversations you have had which banks have the policies and products that would best suit your situation. Banks have different policies and products. They are not all the same. Advisers know this and can navigate it all for you.
The majority of the time, it costs you nothing to consult a financial adviser; however, in the situation where you are using a second-tier lender/commercial lending/equity lending, there may be a fee. Most of the time this can be capitalised onto the loan. The banks will also claw back any commission paid if the loans are repaid and closed prior to 27 months (this varies with lenders, some are less) but this is a conversation to be had at the time of engagement.
Financial advisers are highly regulated. Absolutely everything must be disclosed, from what we are paid, to complaints and clawbacks, and so on. Our files are reviewed and we could get a visit from the FMA at any time. This includes any email correspondence, text messages and phone calls.
All in all, financial advisors are a valuable resource and tool to lean on for knowledge, advice and help with applications. Look out for my column in the next issue if you’d like to learn about different types of loans and the importance of structure.