GOLDEN RULES

The Invercargill Eye - - OUT & ABOUT -

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 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 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.

123RF

Cut­ting the years of debt slav­ery un­der a house mort­gage is pos­si­ble for many fam­i­lies.

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