Paying down mortgage?
Question from David updated on 2nd November 2012:
With two rental properties (new) returning good rents, there is a monthly surplus of $1,000. Is it best to pay that off the mortgages or to continue paying the same interest amount each month (fixed at 5.99% for three years ) until I can move?
Our expert Kris Pedersen responded:
I am missing quite a bit of information here so it is a hard question to answer. But here are some points to consider. You don't mention if you have an owner occupied property. If you do, there is personal debt attached to this and generally it is better to focus on repaying this before looking to reduce the investment debt. See your accountant if this applies to you. Also, you need to be careful when paying more than the required amount on a mortgage when it is fixed. Some banks however allow this up to a limit. For example ANZ and National Bank will allow you to pay the lower of $10,000 per annum or an additional 5% of the loan balance above the required fixed-rate mortgage payments. So in this case you may be able to make additional payments. Break fee calculations differ quite a bit between banks. It may be worth finding out what your actual break fee is with banks offering lower rates than your current one. Do a cost / benefit analysis to see if it is worth breaking.
Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies. www.propertyfs.co.nz