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Pay it off sooner

Debt reduction: pay off your mortgage faster

The biggest saving on a home loan isn’t the rate. It’s how many years you pay interest for. Small, regular extra repayments shorten that a lot.

By Yatin Kainth, Financial Adviser FSP1007497. Last reviewed

Debt reduction NZ – pay off your mortgage faster

Short answer

The fastest way to pay off your mortgage in NZ is to pay more than the minimum, early and regularly. An extra $100 a fortnight on a $600,000 loan at 5.25% with 28 years left takes about three and a half years off the term and saves around $78,000 in interest. Put the extra on a floating or revolving portion so you can pay it without break fees.

See what extra repayments do

Change the extra amount and watch the years and interest come down.

Fortnightly repayment now

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Time saved

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Interest saved

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Assumes the rate stays the same. On a fixed loan, check your bank’s limit on extra repayments before you pay more.

Seven ways to cut your mortgage

  1. Pay fortnightly or weekly, in line with your pay.
  2. Round up repayments. Even $20 a week helps.
  3. Keep repayments the same when rates fall.
  4. Put windfalls on the loan: bonuses, tax refunds, gifts.
  5. Use offset or revolving credit so savings reduce interest every day.
  6. Clear high-interest debt first. Credit cards and car loans cost more than the mortgage. See debt consolidation.
  7. Shorten the term when you refix or refinance, if the budget allows.

Extra repayments on a fixed loan

Most NZ banks let you pay a bit extra on fixed loans each year without a fee, often up to a set dollar amount or percentage. Above that, a break fee may apply. Floating and revolving portions have no limit. That's why I usually build a floating or revolving part into the loan for anyone who wants to pay it down fast.

Should I pay off my mortgage or invest?

Paying off a mortgage at 5% is like a guaranteed, tax-free 5% return. Investing, including KiwiSaver, may earn more over the long term but with ups and downs. Many people do both: keep KiwiSaver contributions going for the employer contribution and government contribution, and put extra cash on the mortgage. For tailored investment advice, talk to an investment adviser.

Related pages

Getting the best from your home loan

Splits, offset and revolving credit.

Structure →

Repayment calculator

Weekly, fortnightly and monthly repayments.

Calculator →

Debt consolidation

Roll expensive debts into one.

Consolidation →

Talk it through

I'm Yatin Kainth, a Financial Adviser at Mortgage Sense in Hobsonville, Auckland (FSP1007497), comparing 30+ lenders. Advice is provided under the Mortgage Managers licence (North West Group Holdings Ltd, FSP682791). This page is general information, not personalised advice. See the Disclosure Statement.

Book a free chat or call 022 064 7770.

Common questions

Is it better to pay my mortgage fortnightly?

Fortnightly lines up with most pay cycles. Paying half the monthly amount every fortnight means 26 payments a year, which works out to one extra month's repayment each year.

Can I make lump sum payments on my mortgage?

Yes on floating or revolving portions. On fixed portions most banks allow a limited amount each year without a fee. Check your loan terms.

Does paying extra reduce my repayments or my term?

Usually your term. Your required repayment stays the same and the loan finishes earlier. Some banks will recalculate a lower repayment if you ask.

Should I stop KiwiSaver to pay off my mortgage?

Usually not, because you'd lose employer and government contributions. Talk to an adviser before changing contributions.

Sources

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