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October 05 newsletter

Reducing the mortgage

One of the biggest barriers to New Zealanders in achieving their financial goals is debt and, in particular, mortgage debt, which has increased hugely in the past few years.

Today, we launch our new mortgage calculator, designed to make it easier to weigh up the available options that may help reduce the financial burden of your mortgage. In particular it gives you the option of choosing your preferred repayment amount or the term of your loan.

The following are some examples that you can run through at your leisure.

A starting example

Your new home costs $300,000.
You have a $30,000 deposit and borrow $270,000 over 20 years at 8.0% interest. Monthly repayments on a table mortgage are $2,258.
Total interest paid over the term of the loan is $272,103.

Now, let's change some of those variables to see how much interest you can save.

Increase your deposit by $20,000

You now have a $50,000 deposit and only need to borrow $250,000 over 20 years at 8.0% interest. Monthly repayments are $2,091.
Total interest paid over the term of the loan is $251,864. By increasing the deposit by $20,000, you have saved $20,239 in interest costs and you have an extra $167 each month.

Or, reduce the length of your mortgage to 15 years

You have a $30,000 deposit and borrow $270,000 over 15 years at 8.0% interest. Monthly repayments are $2,580.
Total interest paid over the term of the loan is $194,447. By reducing the term of the loan by 5 years, you have saved $77,656 in interest costs.

Or, increase your payments

For example, if you were able to increase your monthly repayment by $200 in the original example, from $2,258 to $2,458 per month, you'd reduce the length of your mortgage by approximately 3 years and 6 months. This would result in a saving of $54,576 in interest costs.

Or, reduce the interest rate by 0.25%.

You have a $30,000 deposit and borrow $270,000 over 20 years at 7.75% interest. Monthly repayments are $2,217.
Total interest paid over the term of the loan is $261,975. By reducing the interest rate by 0.25%, you have saved $10,038 in interest costs.

Don't forget to consider some of our other tips and tricks.

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