Inflation is tracking downwards and is expected to return to the RBNZ’s target range of between 1 and 3 per cent in the second half of the year. The Official Cash Rate (OCR) remains unchanged at 5.50 per cent however, and for homeowners who recently moved off much lower fixed rate terms, higher mortgage repayments and the ongoing high cost of living are straining already tight budgets. Despite these challenges however, paying down the mortgage should be a priority. Here are some helpful tips for doing just that.

Make extra repayments as often as you can

Every extra dollar you repay on your mortgage is a dollar you’re not paying interest on in the future. Even small additional payments can make a significant difference over time. For example, if you have a $500,000 home loan at an interest rate of 7% p.a. over a 30-year term, you could end up paying $696,838 in interest, or a staggering $1,196,838 in total repayments. If you can make an extra $100 payment every fortnight, your home loan could be paid down 5 years 2 months earlier (24 years 10 months) and save you $143,214 in interest costs.

Start making extra repayments right away

The earlier you start making extra repayments, the greater the impact on the total interest paid and the time it takes to repay your mortgage. Extra repayments made early in your home loan term reduce the principal balance faster, which in turn reduces the amount of interest charged. This compounding effect means you’ll pay off your loan sooner and save more in the long run.

Review your mortgage at least once a year

Don’t get caught in a lazy tax trap paying more than you should for sticking with the same lender! This convenience can come at a cost. It’s essential to review your mortgage at least once a year to check if you can get a better rate, lower fees, or more flexible terms elsewhere. A Mortgage Express adviser can help you navigate this process and ensure you’re getting the most appropriate deal available to you.

Keep your repayments the same even when interest rates drop

Economists are forecasting that interest rates will begin to decrease towards the end of the year. When this happens, your repayments may decrease right away if you have a variable rate loan, or after you refix if you have a fixed rate. Instead of reducing your repayments, however, keep them the same if you can, as the savings you would have made will go straight towards reducing your principal amount, helping you pay off your loan faster.

Increase your repayments when your financial situation improves

Any time you get a pay rise at work, pay off a significant debt, get a tax rebate, or benefit from tax cuts, redirect that extra money into your mortgage. Increasing your repayments whenever your financial circumstances improve will significantly reduce your loan term and the total interest paid.

A challenging time for homeowners

While the current economic climate is challenging for New Zealand homeowners, there are practical steps you can take to pay down your mortgage faster, reduce your loan term and save on interest.

To check that your mortgage is still fit for purpose and that you’re getting the most appropriate interest rate and terms available to you, get in touch with a Mortgage Express adviser today. Book a mortgage review with one of our experts and get help navigating the complexities of managing a mortgage.