Source: Radio New Zealand
Want to pay off your home loan? Here are some changes you can make to get you closer to that goal. Unsplash/ Artful Homes
Is organising your money life on your New Year’s resolution list in 2026? In this five-part series, money correspondent Susan Edmunds guides you through the basics.
If you’ve got a mortgage, one of your priorities might be to try to get rid of it as soon as possible.
The past few years of higher interest rates have been tough going for lots of people.
As interest rates come down, many borrowers have more options.
There are a few changes you can make that could get you closer to that goal.
Increase your repayments
First up, the most obvious one.
If you make bigger repayments, you’ll be able to clear your home loan faster. What surprises some people is how much of a difference even a small increase in your home loan repayments can make, particularly if you haven’t had your home loan for a long time.
Interest rates have fallen over the past couple of years from more than 7 percent to less than 4.5 percent.
If you have a $500,000 loan at 4.5 percent, you’ll pay about $585 a week over a 30-year term including $411,413 of interest. If you can increase your payment to $600 a week, you’ll only pay $385,836 of interest and clear it about a year-and-a-half sooner.
You can increase your repayments by opting for a higher level when your loan comes up to refix. Sometimes you can ask your bank to increase them during the term, too, or make additional lump sum payments. There is generally a limit on how much extra you can pay back during a fixed term before you have to pay a fee.
When you loan rolls off its fixed term, you could also make an additional one-off payment before you refix again at whatever repayment rate suits.
Anything you can do to pay the balance off faster will save you a lot in the long run because it means the principal will be smaller and there won’t be so much to attract interest – which compounds – over the life of the loan.
Split your loan
You can split your loan into a number of smaller loans. This allows you to take advantage of different interest rates.
At the moment, longer fixes are more expensive than shorter ones but are still relatively low by historical standards.
You might choose to fix part for a longer rate for some security and have some on a shorter term to save money in the short term.
It also means you can choose to make higher repayments on one of the loans, and maybe aim to clear that before switching your attention to the other.
Ask for low-equity margin to be removed, or for special rate access
If you bought your house a while ago with a small deposit, you might be paying a low-equity margin on your interest rate.
You might also be paying higher rates than the “specials” banks advertise for borrowers with more deposit.
You could ask your bank to reassess your situation – if your property has improved in value or you’ve paid off your loan a bit, you could have improved your equity position, or you might find the bank is willing to negotiate.
Shop around for a sharper rate
If you don’t think you’re getting a good deal from your lender, you could look at what else is available in the market. A mortgage broker could help with this.
Banks have also been competing hard with cash back offers that can be worth quite a significant amount of money if you’re willing to shift.
Consider off-set
If you have savings that you want to keep separate from your mortgage, you could set up an offset facility.
That means you forgo the interest on your savings but also reduce your mortgage interest bill. It’s sometimes possible to do this by linking with family members’ accounts, too.
Consider revolving credit
If you have the discipline, a revolving credit facility can work well. This means you section off part of your home loan into what is basically a large overdraft and usually becomes your main transaction account.
You then aim to put your spending on your credit card each month and have your income going into your new revolving credit account.
This means you reduce the interest you pay on that portion of the loan for the period that income is sitting there. Hopefully when you pay your credit cards at the end of the month, there’s a bit left over to reduce what you owe.
You need to be a bit careful with this, though, because over time the idea is that you’ll build up money in that account as you pay it down and you don’t want to be tempted to spend it again.
Advice from a mortgage adviser or a home loan specialist from your bank can really help you to set a strategy and stick with it.
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
