Here are two tips to help you reduce your mortgage costs and by doing so get closer to owning the entire home you live in.
PAY FORTNIGHTLY
Paying fortnightly instead of monthly is a very smart and very simple way to carve a decent sized hole in your mortgage costs. The mathematics are pretty straight forward; As we
all know, a month is two fortnights, give or take a bit. But there aren't 24 fortnights a year; there
are 26. Paying half your monthly repayment every fortnight means, in effect, you will make
an extra month's repayment each year. You probably won't even notice.
Looking at an average sized mortgage of $200,000 over 25 years at 7.5%. The monthly repayment is $1478, and the total interest bill will be $243,400. If you pay half the monthly repayment
each fortnight, the term drops to around 21 years and you save nearly $54,515 in interest.
KEEP YOUR REPAYMENTS AS HIGH AS YOU CAN, EVEN WHEN RATES DROP
When floating interest rates change, the lender will adjust your monthly repayment to reflect
the lower cost of interest and to ensure the loan term remains the same. If the rate goes
down, you will be required to pay less on each repayment. If you elect to continue to make
the same repayment when the rate falls, the extra will be applied against the outstanding
principal owing and you'll save big time!
That $200,000 mortgage at 7.5% will cost $1478 per month to repay over 25 years. Let's assume that five years into the term, the interest rate drops to 6.5%. In order to still have the mortgage repaid over 25 years, the lender will drop the monthly repayment to $1369. But if you kept the repayment at $1478, the term would drop to 18 years and you would save $22,860 in interest.
Adam Parore is the founder of Adam Parore Mortgages.
This New Zealand Mortgage Broker business provides
Mortgage Advice for the New Zealand Market.
For more information visit www.adamparore.co.nz |
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