How to pay off your mortgage faster in NZ: 6 ways that actually work
The fastest way to pay off your mortgage in NZ is to pay more principal, earlier, and set your loan up so that’s easy to do. In practice that means setting your own repayment instead of the bank’s minimum, putting lump sums on at refix, and using an offset or revolving credit so your savings cut your interest. On a $600,000 loan, an extra $214 a fortnight takes about 7 years and $150,000 of interest off.
Examples are illustrative: $600,000 loan, 5.00% p.a., 30-year term, principal and interest. Lender features and allowances change, so check the current position with your bank.
When I go through a loan with someone, I ask early on when they expect to be mortgage-free. Most people say “30 years” or “no idea”. Almost nobody has a date.
That’s not their fault. The bank sets the loan up to run the full term, and nothing in the paperwork tells you how easy it is to shorten it. Here are the six things I look at.
Set your own repayment, not the bank’s minimum
When you take out or refix a loan, the bank sets your repayment at the lowest amount that clears it over the full term. That isn’t a recommendation. It’s a floor.
| Fortnightly | Paid off in | Total interest | |
|---|---|---|---|
| Bank minimum | $1,486 | 30 years | about $559,000 |
| Rounded up | $1,700 | about 22.7 years | about $405,000 |
That’s $214 a fortnight for about 7 years sooner and roughly $150,000 less interest. You don’t need to find $214. Rounding up to the next $50 or $100 still makes a real difference over 25 years.
Pay fortnightly, the right way
Pay half your monthly repayment every fortnight and you make 13 monthly repayments a year instead of 12. On our example that’s about 5 years sooner. The catch is that your bank’s “fortnightly” setting usually recalculates to a lower minimum. I’ve explained how to avoid that in fortnightly mortgage repayments.
Put lump sums on at refix
Refix day is the one time you can pay off as much as you like on a fixed loan with no break fee. A bonus, a tax refund, an inheritance or money from a sale can all go on then.
A one-off $10,000 early in the loan, keeping the same repayment, takes about a year off and saves around $33,000 of interest. The earlier in the loan it goes on, the bigger the effect.
Between refixes, most banks allow a limited amount of extra repayment on fixed loans each year. Check your bank’s allowance, and read mortgage break fees before going over it.
I’ll work out your current mortgage-free date and show you what would bring it forward, including on loans I didn’t arrange.
Book a free payoff review →Make your savings work with an offset
Money in a savings account earns interest, and you pay tax on it. Money in an offset account reduces the interest on your mortgage instead, and there’s no tax on interest you don’t pay.
Every $10,000 sitting against a 6% floating portion saves about $600 a year. Your emergency fund, money saved for the next property or tax money set aside in a business can all be doing this while they wait. Some banks even let family link their savings.
Use revolving credit, if you’re disciplined
A revolving credit has your pay go straight into the loan account. Every dollar that sits there, even for a few days, cuts your interest. It works well if you treat the limit as debt, not spending money.
Offset and revolving credit both run on the floating rate, which is higher than fixed. Keep them sized to what you’ll actually have in them. I’ve compared the two in revolving credit vs offset.
Split the loan so the structure works for you
You don’t have to put the whole loan on one rate. A setup I use a lot:
- most of the loan fixed, across one or two terms, for certainty
- a smaller floating, offset or revolving portion, for flexibility and extra repayments
Splitting across terms also means you’re never refixing all of it at once when rates are high. With the OCR at 2.75% and rising, that matters. See fixed or floating for more.
Is your bank holding you back?
Not every bank offers offset. Some have tight limits on extra repayments, and some make split loans harder than they need to be. If your current setup won’t let you do the above, switching banks can pay for itself, especially with cashback on the move. My guide to comparing rates covers what to look at beyond the rate.
Where to start
- Find your current payoff date. It’s in your banking app, or use the repayment calculator.
- Round your repayment up to an amount you won’t miss.
- Note your next refix date and plan any lump sum for it.
- If you’ve got savings sitting in a separate account, ask whether an offset makes sense.
- Check that your bank offers the features you need. If it doesn’t, compare.
Common questions
What is the fastest way to pay off a mortgage in NZ?
Is it better to pay extra on my mortgage or save?
When can I make a lump sum payment on a fixed mortgage without a fee?
Should I refinance to pay my mortgage off faster?
Read next
Fortnightly repayments
The small change that can take years off your loan.
Revolving credit vs offset
How each one cuts your interest, and which suits you.
Refixing before the OCR
How to pick a 1, 2 or 3 year term right now.
Talk it through with Yatin. Free, no obligation, and usually one phone call.
Book a free chat →Or call 022 064 7770
This article is general information only and isn’t personalised financial advice. Figures are illustrative and based on the assumptions shown. Mortgage Sense is a trading name of Yatin Kainth, a Financial Adviser (FSP1007497) providing advice under the Mortgage Managers licence (North West Group Holdings Ltd, FSP682791). See the Disclosure Statement.
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