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How to reduce mortgage interest payments

Fuseworks Media
Fuseworks Media

New Zealand Home Loans CEO Mark Collins says New Zealanders could shave thousands off their mortgage if they focused less on interest rates and more on repaying their debt faster.

"The world of interest rates has changed dramatically over the last few years, with the OCR still at an all time low and banks offering discounted interest rates to woo clients. Securing the best rate you can at the time is good but as we've always maintained "it's not the rate you pay but the rate you pay it off" that will make the biggest difference overall," says Collins.

Collins says the New Zealand Home Loans model supports its clients to repay debt faster by 'channelling' all funds into one account and saving potentially tens of thousands of dollars on interest costs.

"Channelling is when you leave any surplus funds you have in your home loan account. These funds are then off set against your home loan so you only pay interest on the 'net balance' owing."

Collins says "Clearly there are significant savings that can be made from interest rate reductions and channelling your income. The point to note is that the factor that has the biggest impact and generates the most savings, channelling, you have full control over and can implement regardless of the current interest rate. Interest rates, on the other hand, which have the least impact, you have little or no control over."

"Economists don't agree on much, but one thing they do agree on is that, at some point in time interest rates will go back up. While interest rates are at an all time low, now is an excellent opportunity to make extra repayments on your home loan and reduce how much you owe the bank, so that when interest rates do go up you will be in a stronger financial position to cope with this.

"By using a combination of channelling and the best available interest rate you can save tens or hundreds of thousands in interest payments and be debt free years earlier."

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