For the first time in several years, house prices in New Zealand have started to plateau. Interest rates are on the rise too, so it’s not surprising that many homeowners are tightening their purse strings. You already know that the faster you get your home loan paid, the less interest you’ll pay in the long run. But with limited disposable income and rising living costs, you may feel that paying off your mortgage swiftly isn’t an option.
We’ve got good news. There are ways – it just takes a little creativity and a really good mortgage broker.
1. Make bi-weekly payments instead of monthly
If you currently pay your mortgage once a month, consider cutting it in half and paying it every two weeks instead. Since the calendar year is 52 weeks (not 48), you’ll make the equivalent of 13 monthly payments. It’s an extra month’s payment each year that could shave up to six years off a 30-year home loan term.
Before you make the change, just check there aren’t any fees involved. When you have a floating interest rate, you can usually schedule your repayments however you like. But with a fixed rate, it’s common to have conditions if you want to pay your loan faster. Read our fixed vs floating mortgage article to learn more.
2. Increase your repayment amount, even by a little
The best way to pay off your mortgage faster is to pay more on each due date. This might mean you need to make some financial sacrifices – fewer store-bought coffees or one less streaming service. Do you still need two cars if you’re now working remotely? Selling something you no longer need may be the ticket to putting some extra cash towards your home loan.
You’ll be surprised at how a little extra money can go a long way. For example, for a $500,000 loan, an extra $50 per week each payment can shorten your loan by up to a year. That’s a substantial saving on your interest rate too.
Use our mortgage calculator to help you do the math and see how much you could be saving with a slight increase to your fortnightly or monthly payment.
3. Consider refinancing to a cheaper rate with good flexibility
The easiest way to pay your loan off sooner is to find a lower rate than the one you currently have but maintain (or even increase) the amount you pay each month. Even with interest rates on the rise, now might be the best time for you to refinance your mortgage. If you are going to refinance, make sure the costs don’t outweigh the benefits.
4. Set up an offset account to pay less interest
An offset loan (also known as an offset mortgage) can reduce the interest you pay on your home loan by using money in your everyday and savings accounts to ‘offset’ your home-loan interest – helping you to pay off your home loan faster.
For example, if you have a home loan of $200,000 and have $10,000 in your linked accounts, you’ll only pay interest on $190,000. The smaller the difference between your offset loan and account balance(s), the less interest you’ll be charged.
You’ll still have a minimum repayment amount on your set repayment date. But as a result of the offsetting, a higher portion of your repayments will go towards your principal so you’ll pay off your home loan faster. Many lenders will also allow you to make extra repayments whenever you like without paying a penalty.
5. Improve your home loan structure with our Mortgage Genius Plan
Many people set the structure for their home loan and forget about it, but there are lots of factors that can impact or change your financial situation over time. Regularly reviewing your home loan can be a great way to spot new opportunities to pay less interest and remove years off your mortgage term.
With a combination of fixed and floating interest rates, our Mortgage Genius Plan will help you do exactly that. Our mortgage experts will help you select the right terms and repayment amounts for your financial goals and circumstances – especially when you’re on a tight budget. Ultimately, our expertise will remove all the noise and confusion that comes with restructuring your mortgage.
Take charge and stay ahead
The key to staying ahead of your home loan (even when there’s less spare change to go around) is being proactive, reviewing your structure and repayments regularly and being smart with any extra money. Working with a mortgage partner can help you spot new opportunities to save on fees and interest, and it’s those small savings that will let you say goodbye to your home loan sooner than expected.
To learn more about our Mortgage Genius Plan, speak to a Global Finance expert today.
**These are general guidelines and are by no means a reflection of bank or lending policies