Unlocking Mortgage Jargon: How AI Legalese Decoder Makes Interest Only Payment Recommendations Easier for Mortgage Brokers
- September 13, 2023
- Posted by: legaleseblogger
- Category: Related News
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Interest rate for our $313k mortgage coming up in October
Currently, we have a mortgage of $313k, and in October, the interest rate on our mortgage will increase. This news has caused us some financial concern, as we are unsure if we can afford the additional $150 per week when our interest rate rises from 2.9% to 6.5%. Thus, we decided to seek advice from a mortgage broker to explore our options.
Seeking advice from a mortgage broker
To find a solution, my spouse and I decided to consult a mortgage broker. During our meeting, we discussed our financial situation and expressed our desire to switch banks in order to alleviate the burden of the upcoming interest rate hike. However, the mortgage broker’s only recommendation was to remain with our current bank (ASB) and request interest-only payments for the next two years until the interest rates stabilize.
AI Legalese Decoder can help with the situation
Facing the uncertainty of whether this recommendation is a wise decision, we wondered if there was a way to decipher the complex legal jargon and understand the potential consequences of such a choice. Fortunately, the AI Legalese Decoder comes to mind as a valuable tool in this situation. Utilizing advanced artificial intelligence, this software can help simplify the convoluted language commonly used in legal and financial documents. By inputting the terms and conditions of our mortgage agreement, the AI Legalese Decoder can provide us with a clear understanding of the implications of opting for interest-only payments for such a prolonged period. This would then enable us to make an informed decision regarding our financial future.
Considering our long-term plans
While the mortgage broker’s suggestion offers some temporary relief, we are concerned about the implications of sticking to interest-only payments for two years. We have no immediate intention of selling our property, and our current circumstances, with four children and only one income, make it even more critical to carefully evaluate the long-term consequences of this decision. As I am currently studying and will only become qualified in another 2.5 years, at which point I will have a starting salary of $70k per annum, it becomes essential to assess the affordability and sustainability of this financial arrangement.
Experience with interest-only payments
Approximately 5.5 years ago, we briefly opted for interest-only payments for a period of six months. However, we are uncertain if there is a specific timeframe that needs to elapse before this option can be exercised again. Obtaining accurate information regarding any waiting periods between interest-only payment periods would allow us to plan our finances more effectively.
In summary, the looming increase in our mortgage interest rate has pushed us to seek professional advice. However, we remain unsure whether opting for interest-only payments for a significant duration is a prudent choice. In this situation, the AI Legalese Decoder could prove beneficial in helping us understand the legal implications of such a course of action. Additionally, considering our long-term plans and previous experience with interest-only payments, we aim to make a decision that ensures our financial stability and provides peace of mind for our family’s future.
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Going on interest only will suck as your repayments will go much higher when they do go back to principal and interest.
IÔÇÖd ask about extending the term back out to 30 years or whatever you can as at least then you are still reducing the mortgage. You can always pay higher repayments to catch-up when your situation is better.
Could you delay your study or study/work part time at least until interest rates come back down? I donÔÇÖt think interest only is a good move and the bank may not even allow it either
If I were in your position, I would either put study on hold and get a full time job, or reduce study to part time and work part time. No guarantees interest rates will be lower in 2 years. Can any of your papers be done distance learning?
TBH, I think your mortgage brokers suggestion is a good one, for a short while. Even if you went back to work, childcare costs suck up a lot of your income when kids are little.
IÔÇÖd look into trying to pick up some evening or weekend work. Then try and save up to pay lump sums (if your mortgage allows it). When you get qualified (and hopefully the interest rates are lower), make sure you increase your repayments as much as poss.
Could you extend your term at all and keep payments the same? (Or even abit lower if youÔÇÖre really feeling the stretch atm) ie if you currently have 20 years left on your $313k portion can you pull it out to 25? Not ideal but far better than Interest only where youÔÇÖre not knocking any principal off (obv youÔÇÖre not cutting into it much at 25 years but some is always better than none!)
Part time job?
Get a job in the evenings.
The comment about extending your term is a good one. The other thing to consider is splitting the loan in 2. Put one part on interest only and keep the rest as principal + interest. That way youÔÇÖre still making a dent into your principal.
You gotta do what you gotta do – I would prioritise stability for the kids, keep the same home rather than selling, even if the meant being interest only for a time. You may still be able to over-pay as and when you get extra money, in order to chip away at the principal.
OP, why do you think switching banks is going to lower the interest rate ? They are all much the same ..
Can you look at a little part time job? My daughter works just 12 hours at New World and brings in close to $200 a week after tax.
Your broker’s suggestion sounds sensible to me, with this tweak: also nego some fee-free early repayment for the duration of interest only term, e.g. up to 10% of the capital. You’ll not only reduce the mortgage payments, also have an added option to pay some back if you can afford it.
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Maybe go interest only until the interest rates come down again and/or you’re qualified and working again?
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Maybe look to get a border in for a bit?
To provide some guidance, itÔÇÖd be helpful to know your age, remaining loan term, original loan term, and the number of properties involved. For investments, banks are generally open to approving interest-only loans, but keep in mind that youÔÇÖll still be paying off the same balance in a shorter timeframe. Ultimately, the decision carries risk: extending the loan term increases interest costs. If you were initially granted a 30-year term, itÔÇÖs unlikely banks would extend it, especially if it takes you beyond 65 years. A clear exit strategy becomes crucial in such cases
I did interest only on an investment property for about 20 years. I donÔÇÖt see it as a huge problem. If it helps you get through a tough time while interest rates are high Or your income is low and allows you to stay in your house then thatÔÇÖs all good.
In about 10 years time your house will probably double in value anyway.
You fucking idiot. Did you seriously think interest rates were going to remain sub 3%. Did you not cost out your budget to 8% like any functional adult would (with the other living costs increasing like they did even 8 proved tight) ? Either reduce your lifestyle or accept you can’t afford the house you live in and trade down. Sick of people complaining about the end of their 2% mortgage like it was a surprise.
It might sound good now, you need to understand the long term effects on not paying principal for 2 years. Considering kids and their childcare expenses, going interest free might be the best option you could have now. Not sure what your current scenario of trying part time or weekend jobs – atleast try Uber to manage some expenses until interest rate goes down which may not happen for a year or so
If interest only means you can cover payments and still study, and your property will hold (and gain) value, then do that, keep studying, and see it as a long term investment.
We bought our first house in 2016, have moved through a variety of mortgage repayment options, including interest only, and remained focused on training and education for increasing earning power. Without giving too much detail, it has paid off, and we are now paying down a mortgage very successfully.
I think if it as the investment building, no matter how you make that work, however a disclaimer is that we own a house in and area that has (largely) held value. Good luck!
Really terrible recommendation. You have to do the maths (or get the broker to do it for you, itÔÇÖs literally his job), but paying interest only means youÔÇÖre not knocking off any of the balance of your loan, so your interest payable over time will be significantly more. Plus, how will you feel in 2 years when you look at your home loan and the balance hasnÔÇÖt reduced at all but youÔÇÖve still paid tens (or hundreds) of thousands of dollars in interest?
A better option might be to either extend the loan term or split the loan into partially interest only and partially P&I. This way youÔÇÖre still knocking off some of the actual debt
You can always choose to start paying principal within the two years but ask asb about its policy around that.
Surprising advice from a mortgage broker to not even give you options with other banks. Makes it sound like they get a bonus if you stick with your current bank.
Imo I agree with the general sentiment here. I think you want to avoid interest only payments for an extended period if possible. There is no guarantee that in two years time interest rates will be significantly lower than they are today. Then what would you do?
I think you should get your broker to present you with options if you stayed with your current bank but extending the term out a bit, and similar with a couple of other banks just so you get the idea of what other banks would offer you. Remember also if you change banks when your term is up you may also qualify for the cash back bonus some banks offer.
I know it’s a pain doing paper work for so many banks when you’re just shopping but I think it would be worth it.
Perhaps consider another broker if this is all they can come up with.
Consider extending the term out to 30 years, and consider fixing too, interest only may make sense IF in two years inflation returns to 2% and looks set to remain their permanently, but until the RBNZ (and really the rest of the world) are convinced 2% inflation is here to stay, rates will likely remain higher for longer, I think the average time it takes for quelling high inflation historically has been 5-10 years for example? If your looking at a 5 year fixed rate, Westpac offers 5.99% p.a., if you went for a two year rate then, or interest only, youÔÇÖd basically be hoping for mortgage interest rates to be lower than 5.99% within the next two 2 years, which in an environment where inflation may stick around longer, and historically interest rates in general are closer to 7% than 3%, is worth some thought. Part time work is probably your single best option though, as much as it would suck. Good luck OP.
My take is to use the interest free period if you need it. Keeping a roof over your head and kids healthy should be your number one priority. If you pay a little more in the long term think of it as the premium paid for getting through a tough time. You can generally go back to paying normal amounts at any stage, I.e when you’re qualified and working.