Buying your first home is a major milestone, and setting up the right loan structure is a crucial step in aiming to pay that loan down faster and help you manage your repayments. With fluctuating interest rates and economic uncertainty, making an informed choice requires careful consideration of your financial situation, future goals, and risk tolerance.

Defining Your Goals

First home buyers need to consider:

• Whether they require stable monthly repayments.
• Plans for major life events, such as starting a family.
• Strategies to repay the mortgage faster, such as keeping repayments high when interest rates drop.
• Exploring offset and revolving credit accounts to minimise interest costs.

Assessing Your Financial Situation

Your loan structure should align with your personal and financial plans:

• If you foresee selling, refinancing, or making lump sum payments soon, a shorter fixed-term loan offers more flexibility.
• If you value certainty in budgeting and prefer fewer administrative hassles, a longer-term fix might be the right fit.

Understanding the Economic Climate

The Reserve Bank of New Zealand (RBNZ) has been adjusting the Official Cash Rate (OCR), and further reductions may be on the horizon. If rates continue to drop, choosing a shorter fixed-term loan (e.g., 12 months) might allow you to refix at a better rate next year.

Analysing Interest Rate Trends

Predicting interest rate movements can help shape your decision:

• If rates are expected to drop within the next year, opting for a shorter-term fix (12 months) allows an opportunity to refix at a lower rate.
• If rates are expected to rise or stay stable, securing a longer-term fix (18–24 months) locks in a rate of around 4.99%, offering peace of mind.

Risk Management Strategies

Different buyers have different levels of risk tolerance:

• If you’re comfortable with potential rate fluctuations and expect cuts, a 12-month fix might be beneficial.
• If you prefer stability and think rate cuts may take longer, opting for a 24-month fix ensures predictable repayments.
• If uncertain, splitting your mortgage into portions with varying fixed terms can help balance risk and stability.

Setting up your loan structure – final thoughts

Historically, shorter-term fixes have offered flexibility, but current conditions may warrant a more balanced approach. Setting up your loan wisely can provide certainty and potentially more affordable repayments than what you’re used to. Keeping increased repayments going will set you up for a stronger financial future and help repay your loan that much faster.

While general insights are helpful, every homebuyer’s situation is unique. Seeking professional mortgage advice can ensure your loan structure aligns with your financial goals and risk appetite. Contact me to understand your options and tailor a strategy that best fits your circumstances. Making informed decisions now can set you up for long-term success in homeownership.

By considering economic trends, your financial circumstances, and long-term goals, I can help all first home buyers make a well-informed decision that hopefully sets you up for mortgage repayment success.

Get in touch to discuss your situation today 🙂