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Here are a
few simple tips that can save you money on your mortgage: |
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> Choose
the Right Loan |
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Each bank offers around 7-10 different mortgage products and interest
rate options. With 6 major banks this equates to over 50 different
options that are available to you. Choosing the right
type of loan is extremely important, as it needs the ability to
adapt to your changing lifestyle. Your home loan can let you make
extra payments, be stable, and even take holidays! |
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> Choose
the Right Bank |
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There are 6 major trading banks and many
non-banks in the New Zealand market, all offering a smorgasbord of
different products, services and of course… fees. Choose your
lender wisely, as you may not need all of the services that you are
being charged for. For example, if you have no need to visit a physical
bank and find that phone or Internet services suit you, you should
not have to pay for an expensive branch network that the major banks
provide. |
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> Make
Lump Sum Repayments |
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If you are lucky enough to receive an unexpected amount of cash,
such as a tax refund, inheritance, or work bonus you should look to
pay it directly off you mortgage. Usually when these payments are
received they can disappear quickly and you wonder where that money
went. If you can pay a lump sum off your mortgage, you will have the
lasting benefits of lower interest costs and a reduction in your loan
term. |
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> Increase
Your Payments |
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The most simple way to saving on your mortgage is to increase how
much you pay every week. Have a serious look at your budget to see
if you can afford to pay a little bit extra. The more you can pay
off your loan, the more you can save on interest costs. Most Banks
will allow you to repay up to $10,000 in extra payments per year off
your fixed rate without any penalty. |
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> Pay
Weekly or Fortnightly |
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By changing your payments from monthly to weekly you save on interest.
This is because you would make 52 weekly payments per year compared
to 12 monthly payments. This means that a small part of your principle
is paid off every payment you make, and as interest is calculated
on a daily basis, your interest bill is reduced. |
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> Consolidate
Your Debts |
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If you currently have a mortgage, you could look at refinancing
any other debt that you have outstanding. These debts usually attract
a higher rate of interest than your mortgage. Car loans can be around
22% and credit cards are 18%. By including these items within your
home loan you not only save on interest costs but you will lower your
overall weekly repayments. This can then enable you to increase your
mortgage repayments and begin to reduce your loan. |
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> Decrease
Your Interest Rate |
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Interest rates
differ widely between banks and whether they are fixed or floating.
By opting for a lower interest rate, your overall interest cost
is reduced. Although there are a few offers that seem too good
to be true, and usually are. These include Honeymoon period offers,
where the interest rate may be low for the first year but will
increase in the years following. There may also be additional penalties
if you decide to repay the loan in part or full in the future. |
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> Don’t
Save |
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Having money in
a savings account when you have a mortgage will cost you many dollars.
Saving accounts usually pay an interest rate of around 3% of which
you must pay tax on the interest earned. This means that you gain
a net return of around 2%. However, if you put those saved dollars
onto your mortgage, you will be saving around 7% on interest charged.
There is no tax on the interest that you have reduced which can
then relate to a before tax savings of around 10%. Remember that
a dollar saved is a dollar earned. |
