Weathering the Storm: How to pay your mortgage off faster in hard times
Let's face it, New Zealand's economic climate is a bit chilly right now. But here's the good news: interest rates are expected to dip in the next year, freeing up some much-needed breathing room in your budget. As mortgage advisers, we want to help you be proactive and ready to seize this opportunity to chip away at your home loan.
Here are some strategies you can implement now, regardless of the economic weather:
Review your budget with a hawk eye: Every dollar counts! Track your spending for a month and identify areas where you can cut back. Maybe it's morning coffees, unused subscriptions, or eating out less. Reallocating even a small amount towards your mortgage can make a significant difference over time. Check out our clever calculator here https://www.flaxstreetmortgages.co.nz/mortgage-calculator
The fortnightly repayments advantage: Consider switching to fortnightly mortgage repayments. This essentially gives you an extra mortgage payment each year, accelerating your payoff.
Consider an offset mortgage: if you have savings accounts or business accounts with the same bank you may be able to link them to your mortgage account and save on the interest that you pay the bank. Used appropriately an offset mortgage can shave years off your home loan. Not all banks are equal however, so if you want to know more about this please let us know.
Put windfalls to work: Tax refunds (yes, there are over 400,000 Kiwi with unclaimed tax refunds totalling more than $477m! This could be you, go here to see https://www.ird.govt.nz/unclaimedmoney/claiming-unclaimed-money/search-the-database), bonuses, or even unexpected gifts – treat them as allies in your mortgage battle! Allocate these windfalls directly towards your mortgage principal, reducing your overall loan amount and saving you interest in the long run.
Know what your bank will allow you to do: Most borrowers in New Zealand opt for a fixed-rate home loan strategy, which is great, as they provide certainty (especially in times like these). The thing is that banks all have different policies about how much you can pay above the minimum repayments. If you’re not aware of what you can/can’t do. Reach out, as we’re here to help.
Here's the exciting part: Once interest rates drop (depending on who you listen to, this is expected to be either later in 2024 or early 2025) you’ll have even more power to pay down your mortgage faster. When that happens:
Increase your repayment: Use the projected interest rate decrease to boost your repayment. This will significantly reduce the overall loan term and save you a hefty sum on interest. You will hopefully have a good few years of rates coming down to really make financial progress!
Explore a refinance: Refinancing your mortgage at a lower rate can be a game-changer. Talk to your mortgage advisor (Us!) to see if refinancing makes sense for your situation.
Remember, even small steps now, can pave the way for significant progress later. By employing these strategies, you'll be well-positioned to take full advantage of the lower interest rates and become mortgage-free much sooner. And that's a future worth celebrating, rain or shine!