In this blog we show you some simple tricks to pay off your mortgage up to eight years faster and pay 40% less interest over the life of your mortgage.
You already know that most of your monthly mortgage repayment is made up of interest, especially if it has 20 or more years to go! For example, five years into a 25-year mortgage, interest still makes up 73% of your monthly repayment.
When interest rates fall you have two choices:
- Keep your loan term the same and let your repayment reduce (this is the option that happens by default.)
- Or, keep your repayments the same and pay off your mortgage faster.
Your choice will depend on your circumstances. If you are struggling to cover your day-to-day living costs, then lower interest rates might provide the release valve you need.
Keeping your repayments the same can save you up to 40% on the total interest paid over the life of the mortgage and reduce the time it takes to pay it off by up to eight years.
The example above (“Faster”) shows that repaying your mortgage as quickly as possible (by not changing your repayment amount) is a powerful form of “forced savings.” Total interest costs go from $307,686 to $195,975, and the term goes from 25 years to 17 years.
How to structure your mortgage to pay it off faster
- Don’t reduce your repayments as interest rates fall.
- Have a small amount sitting in revolving or variable and throw any extra money against this.
- Use Kiwi Saver diversion to throw extra against your mortgage.
- If you top up your mortgage to capitalise a break fee or to consolidate debts, then treat it as a separate loan and pay it off over a short (three- to five-year) time frame.
Who are we?
About us
Squirrel is an independent mortgage broking and advisory business. We are happy to help you get the best out of your mortgages whether that is buying property, refinancing or simply restructuring everything to make it work better. If you are buying a new home then you can apply online with us and we’ll save you a bucketload of money, time and stress. Sign up for our free newsletter and get emailed our latest mortgage advice and insights on the housing market.
JB (author of this blog) is the former general manager (products) at ANZ National Bank and has managed over $15 billion of mortgages.
