Homeowners get ahead on mortgages
New Zealand homeowners have made the most of years of low interest rates, to pay off their home loans more quickly.
Westpac has revealed twothirds of its home loan customers are now ahead on their mortgages. Those living at the top of the South Island were the furthest ahead, followed by the main centres.
‘‘We’ve seen some of the lowest interest rates over a sustained period in New Zealand for some time. It’s good to see customers are using this opportunity to pay down debt more quickly,’’ the bank’s chief product officer, Shane Howell, said.
Tom Hartmann, personal finance editor at Sorted, said it was a wise move.
A low interest rate environment has meant people have been able to service much higher mortgages but it’s also the perfect opportunity to get ahead because anything extra you pay doesn’t go to a high interest rate, it goes to taking down the principal. It means you’ll finish quicker.’’
He said small extra payments would make a big difference over the term of a loan.
Howell gave the example of someone paying off a $300,000 mortgage over 30 years at an interest rate of 5 per cent.
‘‘If that person pays the minimum $743 per fortnight that’ll take
30 years to pay off and cost $279,418 in interest.
‘‘But by paying off an extra $50 a fortnight, they can take three years off the mortgage and reduce their total interest by more than
$42,000.’’
Of the main centres, Wellington
"We've seen some of the lowest interest rates over a sustained period in New Zealand for some time."
Westpac chief product officer Shane Howell
had the most customers ahead on their repayments, at just under 70 per cent.
They had paid a median $12,224 extra.
They were followed by Canterbury, at 68.1 per cent of borrowers ahead, and Auckland at 67.2 per cent. Auckland borrowers were the furthest ahead, having paid a median $14,266 extra.
The regions with the lowest proportions of customers ahead on their repayments included Southland at 56.6 per cent, West Coast at 55.7 per cent and Taranaki at 58.5 per cent.
Customers needed to be at least three months ahead in their repayments to be included in the data.
The median customer was eight months and more than $8000 ahead in their repayments.
Howell said many people had come off higher loan rates.
‘‘They’ve kept making the same level of repayment even though the cost of the loan – the loan rate – has fallen. This has allowed them to make real progress on paying down their loan faster and saved them thousands of dollars in the process.
‘‘Alternatively, if people are able to increase the amount they repay each fortnight or month by $50, $100 or even $200 when they come to refix, it can make a substantial difference to their interest savings. It’s a smart move if they can afford it,’’ Howell said.
‘‘We’ve seen an increase in the numbers of customers choosing to float a portion of their loan. It gives them the flexibility to pay off their loan faster.’’
A spokeswoman for BNZ said it had seen a similar trend.
‘‘We see a great deal of our customers becoming debt-free faster by using our home loan repayment tool. Those who have increased their repayments using this tool stand to save $273 million and take 63,000 years off their home loans. On average, these customers have taken four years and 11 months off their home loans.’’
ANZ, ASB have approached for comment. been