infonews.co.nz
INDEX
NEWS

Kiwis taking advantage of low interest rates to pay off their mortgages quicker

Monday 15 February 2016, 9:19AM

By Sarah Thornton

305 views

With the drop in the official cash rate in December 2015 and banks offering home loan interest rates as low as 4.25 percent*, New Zealanders are facing some of the best conditions ever presented to pay off their mortgages faster.

 

With the OCR steadily dropping and interest rates expected to remain competitive, home owners have a real opportunity to make a good dent in their mortgage.  The Reserve Bank has reported an increase in the last 12 months of residential lending being paid in full, from $8.6 billion in December 2014 to $10.16 billion in the year ended December 2015.**

 

Paying off a mortgage can free up capital, which can be used in many different ways.  Some property owners are opting to pay a higher sum each month, leading to the mortgage reducing quickly with a view to being mortgage-free by retirement age.  Others are using the equity they’ve created in their homes to fund a new business or build a rental property portfolio.   And for other Kiwis, saving thousands in interest payments over the term of their mortgage is incentive enough.

 

Cole Murray’s mortgage adviser Steve Davies suggests people assess their situation and whether paying off a mortgage quicker will pay dividends.

 

“First you need to decide why you want to reduce the mortgage term and what your end goal is.  Then look at your budget and what you are realistically prepared to sacrifice financially to increase your loan payments.”

 

Mr Davies says there are several ways for Kiwis to pay off their mortgages faster.

 

Break a fixed term loan.  “Penalties will apply, but if you are fixed on a high rate there may be savings over the long term for breaking and re-fixing at a lower rate. It can certainly be worth weighing up the pros and cons.”

 

Switch banks.  “Again penalties will apply (even if you’re not on a fixed rate, there will still be legal costs to factor in), plus most banks are incredibly competitive on their rates right now. You would really need to see a strong advantage here. But if your bank isn’t offering you the best rate, it could be worth shopping around.”

 

Restructure debt. “Do you need a table, revolving credit, or interest only loan? Different structures will work for different situations.”

 

Consolidate or pay off high interest debts.  “Any debts you have on higher interest rates (like credit cards and personal loans) are often around 19–25 percent interest. Consolidating these debts has two advantages - instead of paying these off, you are freeing up your cash to be able to put on the mortgage instead, and you are not paying higher interest, which adds up very quickly.”

Review outgoings.  “See if you can squeeze anything out of your budget that could go on the mortgage instead. Are you paying too much for power or internet? Could you sacrifice a few cups of coffee? Even if it’s another $10 per week, it will still help to reduce your debt sooner.”

 

ENDS

 

 

For more information please contact Steve Davies at Cole Murray, phone 870 7050 or email steve.davies@colemurray.co.nz

 

Issued by Sarah Thornton, Thornton Communications, phone 027 354 7747 or email sarah@thorntoncomms.co.nz

 

 

www.colemurray.co.nz

 

 

*At the time of writing, the lowest interest rate available is being offered by HSBC at 4.25 percent, with the major banks offering 4.39 percent and 4.85 percent for a one year fixed term loan.  Special conditions apply.

 

**Reserve Bank of NZ C35 residential mortgage loan reconciliation report.