Saving 63,000 mortgage years
BNZ published its ‘‘Good Report’’ earlier this week.
It detailed some of the ways in which BNZ was a good corporate citizen in the past year.
Regular readers of this column will know there are elements of banks’ business that I find anything but good, and not only BNZ.
Consumer credit and madly huge mortgages mean household debt is around 160 per cent of household disposable income.
Some households, particularly younger ones, are loaded to the gills with debts.
This, of course, has been achieved by an ‘‘all of society’’ effort where consumerism and systemic housing policy failures over many years have led to households’ seemingly insatiable craving for more and more debt.
And, if debt is the New Zealand drug, banks are our pushers.
But there was a figure in the Good Report that is heartening, indicating many households are taking control of their financial
GOLDEN RULES
❚ Go hard on your mortgage
❚ Use the online mortgage calculators
❚ $30 a week makes a massive difference
destinies and driving towards mortgage freedom.
It was that BNZ borrowers using its online home loan repayment tool to increase their home loan payments were on track to save themselves save $273 million, and take 63,000 years off their collective home loans.
Now by anybody’s reckoning, the removal of 63,000 debt-years from a population is a good thing.
On average, these customers, BNZ says, have taken four years and 11 months off their home loans.
Individually, that can have a huge impact on where a person ends up, and actually, the lifestyle pain people have to endure to achieve that is often relatively modest.
$30 extra a week can take three years off a $500,000 mortgage and save $50,000 in interest, which is a heck of a human wealth gain.
Imagine the saving you could do, if tomorrow, your mortgage payments ended.
History tells us that a debt-free
‘‘If debt is the New Zealand drug, banks are our pushers.’’
house is key to having a comfortable retirement, and some financial resources to cope with emergencies.
The earlier in life people take that truth to heart, the better for them.
The BNZ customers speeding up their repayments will no doubt be using a variety of strategies.
Some will have tightened their belt to achieve their savings, adopting more frugal lifestyles.
Others will have taken steps to increase their incomes, such as taking in borders, working extra hours, or a second job, or developing some side ‘‘hustle’’ as some like to call it.
Some of those cyclists you see speeding past stationary traffic are driven by the desire to spend less on petrol and car insurance, so they have more to save, invest, and reduce debt.
And some of those BNZ borrowers will have increased their repayments each time they got a pay rise. That last is a strategy BNZ built into its Tailored Home Loans more years ago than I can remember.
The tailored home loans were a market first, created in an era when mortgages were modest compared to incomes, and the standard term was 25, not 30 years.
The idea was that each year, the borrower would automatically increase their repayment rate a little, picking up momentum over time, and slashing years off the mortgage.
Now that was a good idea.