What term should I have on my mortgage?

What term should I have on my home loan is the burning question for everyone starting out with a mortgage. But also relevant to those buying a rental, increasing lending or even refinancing. 

At the moment, the maximum term you can have is 30 years, though that can potentially vary with imposed maximum terms by the banks based on age and how far you are from retirement. 

Though each bank is different on how they will treat age when it comes to loan terms. Which can also be influenced by the financial position of the borrower and their planned retirement age and exit strategy!

For the purpose of this article I will mainly focus on owner occupied borrowers where the term available is up to 30 years. 

For a lot of people, especially first home buyers, keeping payments to the minimum (ie 30 y max term) to start with is a good idea if cashflow is tight. You may have stretched yourself to get on the property ladder so starting out with a 30 year term is OK. The good thing is you are not stuck on a 30 year term forever! Having a mortgage is a journey with the ability to change it as you go along as your financial position and income changes. Though increasing the payments slightly at the start of the mortgage will help reduce the term if you can afford to. 

Many first home buyers will start on the maximum term to free up cashflow to invest money in the property. They may also want to keep payments low till they are in the property for a few months to see what sort of expenses might crop up and get a feel for the day-to-day commitment of the property maintenance, mortgage payments, rates and insurance. 

There are those that having the maximum term actually gives great flexibility to get mortgage free quicker when they are disciplined and with extra cash flow. That might mean being on a 30 year term to start, with minimum payments, BUT saving lump sum payments with surplus cash in an offset or revolving credit type facility to enable regular chunks of payments off the fixed rate loans (or floating) at review time. For example, self employed borrowers where business income can fluctuate might prefer this option. 

Having some of the lending on floating can also allow borrower instigated extra payments to get mortgage free quicker with the ability to revert to the minimum payment if cashflow got tight. 

Having regular reviews of fixed interest rates can also add flexibility to ramp things up including lump sum payments. 

The key thing is if starting out on a 30 year term, such as a first home buyer, don’t get hung up on not getting mortgage free quicker than that. Along your mortgage journey there will be plenty of chances to pay it off quicker. 

But everyone’s situation is different and that is where our help comes in, so reach out to Craig for advice any time.