Pay your mortgage 10 years faster, save $300,000

Thursday, 22 November 2018

Upping mortgage payments by $10, $20, or $30 a week makes a huge difference to the time it takes to repay the loan, and the total interest paid.

Home loan customers are using low interest rates to get rid of their mortgages more quickly.

Mortgage rates are still at historic lows.

Someone with 20 per cent deposit can now access 3.95 per cent for a year - meaning a $500,000 mortgage would cost $1211 a fortnight over 25 years.

That is compared to $1780 at the height of the last cycle, when fixed interest rates hit 8 per cent.

Keeping your payments at the same level when interest rates drop saves significant amounts of money.

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If you had kept the payments at that 8 per cent level as interest rates dropped, you would now be on track to pay off your loan 10 years earlier, saving more than $350,000 in interest.

Westpac said two-thirds of its home loan customers were ahead on their mortgage payments.

The median time was eight months ahead and $8563 in the year to the end of October. That is $340 more than the same time last year.

People in Nelson were the furthest ahead in time, at 20 months and $12,145, but Aucklanders had got the furthest ahead in dollar terms - knocking off a median extra $14,456.

Westpac NZ's general manager of consumer banking and wealth, Simon Power, said the bank was keen to support more customers to pay off their loans more quickly, as doing so could save them tens of thousands of dollars in interest payments over the lifetime of the mortgage.

'Westpac's mission is to help our customers financially, to grow a better New Zealand. One of the clearest ways we can do that is to support our customers to save more by paying off their debt faster.

'And with many mortgage rates falling, in the past two weeks, to historic lows, it's a great time for customers to get ahead by holding their repayments at the same level at which they have been paying,' he said

He said many people had been making the most of low interest rates over the past few years, which reflected a good economy.

'If people are able to increase the amount they repay each fortnight or month by $50, $100 or even $200 when they re-fix, it can make a substantial difference to their overall interest savings.'

Power gave the example of someone paying off a $500,000 mortgage over 30 years at an interest rate of 4.79 per cent.

'If that customer pays the minimum $1209 per fortnight it would take 30 years to pay off and cost just over $440,000 in interest.

'But if they can manage to pay off an extra $150 a fortnight, they could shave six years off the mortgage and reduce their total interest paid by more than $106,000. That's a significant saving and a path to greater financial freedom.'

Power said the bank had many tips to help people pay off their home loan faster and save money.

'It can be as simple as changing your repayments to fortnightly instead of monthly. You end up making two extra repayments per year, which reduces the amount owed and the interest paid.

'People could also consider increasing their regular loan repayments, shortening the term of their loan, and consider paying lump sums off their loans when it comes time to re-fix. Also, choosing to float a portion of their loan allows them the flexibility to pay off that part of their loan faster.

'Interest rates have fallen recently, so now is an excellent time to pay down some extra debt if you are re-fixing, as well as keeping your monthly repayments the same despite interest rates dropping, in order to pay off your loan faster.'