retirement.org.nz

That’s the question being posed by Retirement Commissioner Diana Crossan who is urging all homeowners to look carefully at their home loan options.

Many people could save tens or even hundreds of thousands of dollars depending on the setup and repayment options they chose, she said.

"This year, just over 40 percent of fixed-rate mortgages are estimated to run out and so Kiwis should be searching out the best deal for their circumstances."

"People need to consider not only any short term sweeteners offered by mortgage lenders but the long term costs. Too many people with mortgages just consider the cost of the deposit and regular repayments. They neglect to first calculate how much they could save by increasing the level of repayments or frequency of repayments. In many cases even increases of relatively small amounts can make a huge difference."

For example:

• Someone borrowing $200,000 at an interest rate of 8 percent and paying it back at $1000 a fortnight will take 12 years to repay the loan at a total cost of $276,820.
• If the same person took the same loan with the same interest but paid off $700 a fortnight it will take them 26 years and 6 months to repay the loan at a total cost of $374,611- an extra cost of $97,791.

Ms Crossan said people could make significant savings if they could afford to pay off their mortgage more quickly. And the earlier the mortgage was paid off, the sooner people could start to build a nest egg to give them income when they chose to retire or work less hours.

“There are people who can afford to pay a bit extra but haven’t done the sums to work out how this will translate into substantial savings. As home loans are usually people’s biggest debt, this is one area that they need to focus on to make sure their mortgage is working in their best interests.’

Her comments come in the wake of a nationwide survey that found that some homeowners are not aware of even the basics on mortgage repayment and home loan terminology.

The ANZ-Retirement Commission Financial Knowledge Survey released in March found that a third of mortgage holders were unable to correctly identify that there was no repayment penalty for variable home loans and 23 percent did not know the meaning of the word ‘equity’.

Ms Crossan said New Zealanders should use the Commission’s comprehensive online mortgage calculator service to do the figures and see the effect differing mortgage set ups could make to their financial future.

The calculators are free and sit on the Commission’s independent Sorted website www.sorted.org.nz and allow people to:

• Compare mortgage deals across lenders
• Work out how to arrange a home loan to pay the least interest
• Work out how much you’ll pay in interest over the lifetime of your mortgage
• Determine the total cost of your mortgage over time
• Calculate how much money in interest you’ll save by increasing your regular repayments by just five or 10 percent

For more information contact:

Robyn Cormack
Marketing & Communications Manager
Retirement Commission
robyn.cormack@sorted.org.nz
04 494 6243
021 242 7936