Loan arrangers

Make the most of your mortgage, avoid debt traps and enjoy the dividends.
I hate to see so many New Zealanders’ hard earned dollars going to join our off-shore debt mountain.Like most of the Western world, New Zealand joined the ‘buy now pay later’ mind set.
At the time, it seemed like the best thing to do. No one questioned the fact that all this borrowing was supported on the interest charged or that ownership of the so called assets was nominal and, in some cases, notional.
It’s easy to be wise after the fact but economic history has modelled the cycle of boom and bust since the 19th century.
As a result of the great depression of the thirties, our grandparents had a real appreciation of the value of being cash positive. Consequently they chose to simplify their household economy into a ledger book model where nothing was bought unless it could be afforded. Power bills, school uniforms and holidays were saved for penny by penny. It was all grittily accountable.
When I started teachers college, in the late 60s, some of my friends began to cautiously put clothes on lay-by. It seemed almost risqué.
Well, haven’t times changed? Advertising has moved on from the fifties where radio jingles about toothpaste and the soap powder worked on people’s insecurities about cleanliness. Now, it’s a full scale offensive on our need to possess the newest and best of commodities. This is a merciless up-selling process because companies release technically superior models every six months or so in order to supersede the previous models.
Unfortunately, our wages are nowhere sufficient to keep up with this onslaught. In fact, a lot of us have gone on a borrowing spree. We borrow money to finance our house, our car, our holidays and recreational pursuits. It has become a way of life and has facilitated much in the way of instant rewards. However, let’s consider the value of these rewards. Buying a car is always an exercise in devaluation. Holidays create a ten-day window of opportunity for relaxation but the only tangible thing left is the memory, which is qualitative in value but cannot be traded in order to pay the bills. As for the house, to be fair, even our balance-obsessed ancestors did have to borrow on houses because then, as now, houses could not be saved for out of the household income.
New Zealanders have historically held special store in owning their own home. Maybe it’s because we are an immigrant society and, having a stake in our new territory is what our ancestors came here for, leaving an old hierarchical world where the majority of land was owned by the privileged few.
Land is still a privilege. Not everyone can afford to invest in it and those who do often take a literal approach to their investment. They spend twenty five years investing a large proportion of their income in paying for their house and are focused purely on ownership. They see the house as an asset worth paying for and this is, of course, true. However, if they were to spend as much money on other markets they would expect on-going returns. If they weren’t getting them, they would withdraw their money and invest elsewhere.
If you were to treat your house as an investment, wouldn’t you become a bit more demanding about getting a better return on your money?
Let’s look at how you can get a better return on your money. Firstly, do some due diligence on mortgage management companies. A lot of people don’t know they exist. Yet, mortgage management is in a professional category all of its own. No one thinks twice about employing an accountant to get back unnecessary tax. Yet people persist in believing that the only way out of a mortgage is to pay more to the lender. This misconception blinds them to the fact that there is a much more cost effective way of dealing to a mortgage.
Mortgage management programs tackle the problem of compounding interest. And it’s the way interest compounds that causes many New Zealanders to pay two to three times the amount they borrowed and is a major reason why it takes 25 years to pay off their debt. However, if a person’s mortgage is properly calculated, structured and managed through time, compounding can be utilised to the mortgage holder’s advantage. This allows them to get out of their mortgage much sooner and save many thousands of dollars in the process. For most people this sounds a bit counter intuitive as it’s difficult to believe it’s possible to pay less and get out of a mortgage sooner.
So, how does it work? It’s based on people banking through an interest only portion of their mortgage and yes, this facility has a bad name because unmanaged it can get people into further debt. Properly managed however, it has a truly amazing capacity for converting unnecessary interest into savings which allows people to pay down their mortgage much sooner, have a better balance between cash flow and expenditure and achieve current and future financial goals cost effectively.
If you like the idea of making your mortgage more cost effective and have it drive some benefits for you along the way, it’s well worth your while to do some due diligence on mortgage management companies. However, getting these sorts of advantages out of your mortgage is no quick fix and it’s important to make sure that the mortgage management company you choose is prepared to work with you through time and your changing circumstances. Proper planning and management means that you countersign a contract that obligates the company not only to get you an advantageous facility but to crunch the numbers through time, consult on a regular basis, and update and re-do plans as your circumstances dictate. An ethical company is not going to charge you unless you stand to make significant savings.
Check it out. Find out what you could be saving compared to what you are doing now. It must make you as mad as it makes me to know that so many hard of our hard-earned Kiwi dollars are going off-shore to advantage overseas shareholders.
Linda Hart
www.equitus.co.nz