If we were in business selling something like clothes, or pots, or ice creams, at least once a year – usually at the end of the financial year – we would undertake a stocktake. This is where we count all the stock, ie. the items we have for sale, and estimate how much this stock is worth in dollar terms. This information helps work out how we got on financially during the year, for example did we make as much profit as we expected to, and did we make more profit than last year, and so on. While this is usually done for tax reasons, the information is also vitally important for other reasons, such as is our financial situation improving or getting worse, or maybe considering the time and effort involved in running our own business, would we better off working for wages.

Self employed people do this as a matter of course every year, but in fact every one with a mortgage should also do a stocktake of their mortgage at least once a year. This does not only mean looking at the balance of your loan to see how it compares with last year, but in fact looking at everything to do with your mortgage.

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Many lenders or providers of home loan finance make promises about your mortgage that they know will never be achieved. This particularly applies to those who heavily promote revolving credit facilities or products similar to this. These are also sometimes referred to as “come and go” mortgages, meaning that you can pay as much as you like off your loan, but provided you do not exceed an upper limit, can redraw the funds whenever you like. These lenders will usually set a budget that if you stick it, will pay off your 25 or 30 year mortgage in, say, 15 years. While what they are saying is true, what they don’t tell you is that hardly anybody can stick religiously to the budget for the necessary 15 years. In fact many of the people with these loans will find that their mortgage will run for the full 25 or 30 years, resulting in virtually no saving in interest.

If a significant part of your loan is on revolving credit it will be at a floating rate of interest, which can be substantially higher than available fixed rates, meaning that instead of saving interest costs, you are actually paying more.

The only way you will know if revolving credit is working for you is to carry out the annual “stocktake”. This not only means comparing the balance this year with the balance at the same time last year, but also comparing the loan balance with the limit. If you have a limit that reduces at the same rate that a table mortgage reduces over 30 years and you are virtually up to your limit all the time, you would be better off with a table mortgage at a cheaper fixed rate of interest. If you do not have a reducing limit and you are nearly always up to your limit you are even worse off. Your loan is not going down and you are paying a high rate of interest.

Check to see if you are achieving the promises that were originally made to you to persuade you take out this type of loan in the first place.

Another item you should check is to see if your budget could manage an additional $20 or $50 per week to go towards your mortgage. In previous articles we have shown how even modest increases in mortgage payments can produce very large – maybe even huge – savings in interest over the term of the loan, which itself is also considerably shortened.

Also check things like your lender allowing lump sum payments off your loan. Do you have money saved or invested that could be better utilised by being paid off your mortgage? Do you have other debts which could be incorporated into your mortgage, making the management of your finances easier as well as achieving a lower rate of interest? Do your repayment dates line up with when you receive your income? Maybe when you took out your loan you were being paid weekly so you arranged for weekly loan payments, but now you are being paid fortnightly and finding the money for the loan payment in the non-pay week is proving difficult.

Checking all the relevant matters of your mortgage can be overwhelming and some unbiased expert advice would be beneficial. A talk to a qualified mortgage broker can be a huge benefit as they are trained to guide people through the intricacies of your mortgage. There is no cost for this service, and often the advice is to carry on as you are currently doing. However if there are changes or savings that can be made and are beneficial to you, the mortgage broker will point these out and even do the work necessary to get these changes implemented. All this with the minimum of fuss, and at no cost.

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Courtesy:
http://www.ohaganmortgages.co.nz/

Articles/Stocktaking+your+mortgage.html




 

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