Like many of you, our Facebook newsfeeds have been inundated with advertising for the Kiwibank "free trip to Rarotonga" giveaway with one of its new home loan products. Of course we can negotiate you a great deal on your home loan along with structure and advice that will surely beat their offer.
It may seem boring by comparison but the lessons here and personal advice from us could see you sitting on a tropical island celebrating being debt free years ahead of when you thought you would be and we think that's more important.The huge drops in interest rates this year and long term rates at such low levels have created a prime opportunity to repay your loan faster. The cost of your Home Loan has dropped so by maintaining your principal repayments at the same level they were on your old fixed rate (or where they may be in the future if you've just bought) will take years off the time you spend paying a mortgage.
Here is a quick example
A $300,000 loan @ 6.5% over a 30 year loan term would have repayments of $437 each week. Now let's say you've just come off that fixed rate and you could fix for 2 years @ 4.5%, if you kept the repayments the same your loan term would reduce from 30 years down to 21 years!
Most people don't sit repaying the same loan over 20 or 30 years so we can break that down in to something more relevant. Using the same example you would be making extra principal repayments of around $12,000 over that two years. The beauty of that is that even if rates went back up to 6.5% at the end of your fixed term you could maintain those repayments and you would have shaved 3 years off your loan term just from the extra principal you have repaid.
I know this looks like a really simple tip but the savings can be huge for doing something that simple. If you add in to this other options such as lump sum repayments then you get compounding benefit in reducing your loan amount over time.
What is important is to get the right structure set up for your personal situation. If you're on a fixed income, with fixed expenses then a simple fixed loan is going to work well for you. But if you receive bonuses or occasionally have extra money available then we would look at finding a structure that would allow you to take advantage of those lump sums and make it easy for you to progress towards being debt free.If you'd like a free assessment of your current Home Loan and how it could be improved then you can email us we'll come back to you with a report with quick tips on how to improve your home loan, specifically tailored for your personal circumstances.