How to save $ 25,000 – or more – on your mortgage

OPINION: With the borders closed and spending falling, those with stable jobs and a little money already have pay down consumer debt. However, home loans will still be New Zealand’s biggest debt – but there’s a lot you can do to lower yours beyond your regular payments.

With absolute certainty, I can assure any reader that going mortgage free as quickly as possible is the right way to go about life. And while that usually involves some sacrifice, there are some quick wins that will make prepayment a reality. To keep it simple, I’ve listed some proven ways to lower mortgage costs, starting with the most effective and least painful ones.

Make your mortgage payments every two weeks instead of monthly

It sounds simple, but it will save you thousands of dollars in interest charges over the life of your mortgage. To explain it further, when you make monthly mortgage payments, you make a total of 12 payments per year. But, if you choose to pay off every fortnight, you end up making 26 payments per year, or 13 “monthly” payments in the same year.

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How much will you save? I calculate that paying fortnightly saves over $ 25,000 at market interest rates on a $ 500,000 loan over 25 years. It’s a lot of money for not doing much.

Applications for mortgages, personal loans and <a class=credit cards have all crashed under the foreclosure.” style=”width:100%;display:inline-block”/>

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Applications for mortgages, personal loans and credit cards have all crashed under the foreclosure.

Make your first mortgage payment on settlement day

New homes are fun to buy, and lenders usually state that you’ll make the first repayment within a month of taking possession. However, choosing to make the first payment on the first day of your mortgage is a smart way to eliminate unnecessary interest charges that would otherwise accumulate.

For example, if your first repayment is $ 2,000, the interest charged on that amount will rise to more than $ 800 if it takes 25 years to repay it (using market interest rates). Decrease principal as soon as possible as a small but significant effect on the cost of your mortgage.

When renewing your mortgage, keep the same (or more) repayment amounts

If your mortgage balance goes from $ 500,000 to $ 450,000 over three years, it is very tempting to reward yourself with lower payments. After all, the debt owed is less and most lenders will offer you 25 years. However, it turns out to be more expensive. In a simple calculation, if you were paying $ 1,500 per month and the re-mortgage gave you the option of $ 1,200, paying the additional $ 300 per month for principal will save over $ 15,000 at interest rates. of the market. Best of all, you’ll also be released from your mortgage faster.

New homes are fun to buy, and lenders usually state that you'll make the first repayment within a month of taking possession.

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New homes are fun to buy, and lenders usually state that you’ll make the first repayment within a month of taking possession.

Overpay without triggering the prepayment penalty threshold

Most banks won’t be too excited about overpayments, even if it reduces their risk. However, some banks allow you to increase your standard mortgage payment up to a certain level. The ASB, for example, offers home loans that allow you to increase your fixed interest rate loan repayments up to $ 500 per fortnight or $ 1000 per month without incurring an “Early Repayment Adjustment (ERA)” .

If you did this every month with a mortgage loan of $ 500,000 at today’s interest rates, you would save over $ 80,000 in interest costs over 25 years. That’s a lot of money if you can give up the money every month.

Don’t add loan fees to your loan

Most lenders will make it too easy to add mortgage fees to your loan. However, even if it is $ 2,000, interest charges of $ 1,000 will accrue in the long run. Buying a home is expensive, but if you have the money for moving expenses and new furniture, you may want to extend the savings to cover loan costs.

The above list is only half of the tips from the new MoneyHub Guide Pay your mortgage faster. Saving money on interest charges and paying off debt is the fastest way to achieve financial freedom – even if you applied two of the ten suggestions, the savings would be significant. The same rules apply for any personal debt, which means that auto financing can become much cheaper when you consider the total cost.

Christopher Walsh is the founder of MoneyHub.co.nz and is a proponent of reducing the interest charges in every transaction by starting simple money habits, making mortgage, car loan, credit card or student debt payments much faster.