We discuss how maybe its a good idea to increase mortgage payments now.
So the good news is interest rates have dropped again, and that means your next refix could be at a lower rate. and maybe a good idea to increase mortgage repayments – maybe.
And that presents us with an opportunity that we should take advantage of.
If you have been paying your home loan a long time and still managing to keep food on the table, then refixing at a lower rate gives you an opportunity to focus on paying that home loan off faster.
If you are in this situation now, or have a loan due to be refixed soon then you need to think seriously about what you are going to do.
3-Steps When Loans Come Off Fixed
For most people the home is the biggest asset and the home loan is the biggest debt.
You should look after them both, but most people don’t.
Of course people do spend hours looking after their homes, but most people give very little thought to how their home loan is going for them – or more importantly how it could be doing better and saving them a lot of money in the process.
So when you are considering what to do with a refix, instead of just clicking a button in your App you should go through these steps first.
Step 1: Have you checked that you have the best home loan?
With most purchases we have a look at what options there are and then weight up what we are prepared to pay to ensure that we get a good product and value for money.
You know that a BMW might cost more than a Toyota, and while you might think the BMW is better you might decide on the Toyota as it appears better value for money.
But did you compare the home loans that are available? Most people have never looked at the options as they feel that the home loans are all very similar, but that’s a mistake – they are all quite different. The good thing with home loans is that a good one costs no more than a bad one – so you should get the best home loan.
We hope that you found that article helpful.
Step 2: Have you looked at your home loan and do you know how all the features work?
Most people just pay what they are told to pay and rarely question if there are some features available that might make life easier and save them money.
Have you had a really good look at the options?
Banks are generally not great at explaining how the home loans should be set up, and how to manage them. We often speak to people that have had the loans for a number of years and were never made aware of the options that they have.
As mortgage advisers we like to help people pay their mortgages off faster, while remaining flexible enough that they can work through the various changes that life can present. Most loans have a range of options that might be good or bad and you need to know what they are and how they work.
Step 3: Can you keep your higher repayments, or increase them?
We think a lot of people do know that you can repay your mortgage faster by increasing the repayments. But most people we speak to don’t really know the significance of how this works and are shocked (but pleased) to learn more about how the increasing of mortgage repayments really can save them a huge amount.
You should have a home loan set up so that you can pay it off faster.
Nobody really wants to have a home loan longer than they need to, and might be pleasantly surprised to see how even small extra payments can cut years off the loan.
Try the calculator here to see what the increased repayments do to the “Interest Saved” and “Time Saved”
WARNING: You need to be sure that you know the banks policies too BEFORE you choose to increase the repayments as you can find it difficult to reduce the repayments again with some banks. We have written about how Kiwis have been trapped with their home loans when they have not read the fine print or had the risks explained. We’re not surprised as we’ve had to explain this to bank staff too – they never knew. The banks often promote paying more on the mortgage without explaining the risks if done wrong.
Get Good Advice Before You Change Anything
We know that Kiwi’s have a real ‘do it yourself’ attitude and that’s great with some things.
When you are dealing with your largest financial commitment (your home loan) then you probably should reach out for some good professional advice, and with businesses like Mortgage Managers that advice is offered at no charge to you so there is really no excuse not to at least have a conversation about the options.
You could go to the bank directly, getting no advice and knowing that you will not get any real comparisons. But why would you when you can also speak to a professional mortgage adviser and not pay a cent.
You could refix on a banking App too – but that’s not a great idea. We see the banks promoting this as the “easy way” to refix, but easy does not mean it’s a good idea and in many cases it is quite the opposite. You can read here: why refixing on the banking app is a bad idea
So many people we talk to think that mortgages, think that all home loans are the same, and the only real difference is what interest rate you can get. They’re often shocked when they learn how different some loans are. It’s then often a shock when they hear about a better home loan and think how much better financially they could have been today if they had had that better home loan for the last few years.
I recently had a client switch home loans after being with the same bank for over 20 years. They'd been with the same bank for all of their working life and believed that they were getting looked after because of the special deal the bank gave to people in their profession. They were pretty shocked to learn what they could have done differently if they'd had the right home loan.
Stuart Wills - Mortgage Adviser
Mortgage Managers spend a lot of time researching the differences in the loans to make sure that when you want to pay the mortgage off faster, you’re not going to get trapped into a situation that puts you into financial difficulty. We can explain which loans help and show how a good idea to increase mortgage payments can be implemented.
We also know that it’s hard to know how to choose a home loan and also we know lots of people think the only difference if the interest rate. It is a difference at times, but in most cases the bank with the lowest rate today might not be the same bank that has the lowest rate tomorrow.
We do provide regular updates on the New Zealand financial markets too though our news site Kiwi Edition.
These are some of the reasons to use a mortgage adviser for both arranging your home loan and then managing your home loan.
So when someone asks you “is it a good idea to increase mortgage payments” you can suggest that they read this or ask a good mortgage adviser first.
