HACK YOUR HOME LOAN
Brooke Reynolds of Rapson Loans and Finance explains why many of us pay more on our home loan than we need to, and how a simple mortgage check-up could save thousands.
Brooke Reynolds of Rapson Loans and Finance explains why many of us pay more on our home loan than we need to, and how a simple mortgage check-up could save thousands.
When people first take out a mortgage, the interest rate usually gets most of their attention. If the number looks decent and the payments seem manageable, they just shrug and carry on. But that’s how so many Kiwis end up overpaying their mortgage without even knowing it.
And when I say overpaying, I’m not talking about a few dollars here and there. I’m talking thousands – sometimes tens of thousands – over the life of the loan. All because the structure isn’t working as hard as it should.
Your mortgage isn’t really a “set and forget” arrangement. Life changes, interest rates shift, and banks regularly adjust their offers, but many loans stay exactly the same for years. Without a review, it’s easy to keep paying more than necessary.
One of the biggest culprits is having everything on the wrong fixed term. People lock something in years ago and assume it still makes sense. But what suited you in 2021 might not suit you now. Maybe you’ve had a pay rise, or your kids have left home, or rates have dropped, but your loan hasn’t kept up.
Another way people overpay is by not splitting their lending. Having all your lending on one fixed rate might feel simple, but it also means you're at the mercy of whatever the market is doing the day that rate expires. Splitting your loan across different terms can smooth out the bumps and stop you from getting whacked by big swings.
Then there’s the classic one: not reviewing your mortgage regularly. I review my clients’ loans every 6 to 12 months, because even tiny tweaks can shave years (yes, years) off the mortgage. Most banks don’t ring you up and say, “Hey, we’ve got a better deal for you!”, but that doesn’t mean a better deal isn’t out there. And let’s not forget the cashbacks, discounted rates and competitive offers floating around. Many homeowners just don’t realise they’re there.
If you haven’t reviewed your mortgage in the last year, there’s a good chance you’re paying more than you should. Not because you’ve done anything wrong, just because mortgages need attention, the same way your car or your health does. A quick check‑in could save you thousands.
Flex your finances
Brooke Reynolds of Rapson Loans and Finance explains how structuring your home loan to suit your lifestyle could save you thousands in interest and shave years off your mortgage.
Brooke Reynolds of Rapson Loans and Finance explains how structuring your home loan to suit your lifestyle could save you thousands in interest and shave years off your mortgage.
PHOTO Jahl Marshall
Securing the right home-loan structure for your lifestyle is important for achieving your financial goals. This decision requires a thoughtful conversation with your financial adviser, taking into account various factors such as your current and future affordability, interest-rate trends, long-term objectives, potential changes in your financial situation, and your spending habits.
The home-loan market offers a wide range of products designed to accommodate different financial circumstances. Among the most popular options are fixed-rate loans, which provide stability and predictability. These loans lock in an interest rate for a period ranging from six months to five years, allowing you to plan your repayments without worrying about fluctuations. With a fixed-rate loan, you can also make additional payments to build equity more quickly, and some lenders allow lump sum contributions of up to five percent of the loan balance.
Variable loans are excellent to work alongside a fixed loan or on their own to offer you flexibility, rapid repayment and reduction of interest paid. There are three types of variable loans, each offering unique advantages:
Revolving Credit: This is where you have part of your home loan on the floating rate. It acts as a transactional account with a credit limit, where interest is calculated only on the outstanding balance. It’s ideal for those who like easy access to funds and flexible repayments.
Floating-rate loans: These are independent loans that allow you to make lump-sum payments in addition to the minimum required payment at any time. This flexibility helps reduce your interest costs. Some floating-rate loans also offer the option to redraw funds, providing you with even more financial flexibility.
Offset loans: These clever structures link to your transaction and savings accounts, reducing interest by offsetting your loan balance against your account balances. This means that when your account balance matches your loan amount, your repayments contribute directly to the principal.
Your natural financial behaviours should guide your loan-structure choice. If you tend to spend leftover money, a fixed-rate loan with increased payments might help you manage interest more effectively. Savers who dislike frequent account transfers might prefer an offset loan. For those who enjoy actively managing their finances, revolving credit or floating rate options could be ideal. However, be aware that not all floating loans allow withdrawals, so it’s crucial to consult your financial adviser for specific details and recommendations tailored to your situation.
Your financial situation evolves, and so should your loan structure. Regular reviews with your adviser ensure your lending continues to meet your changing needs and goals. Remember, the ideal loan structure adapts to your lifestyle, not the other way around. By understanding your options and working closely with a financial expert, you can create a home-loan strategy that supports your goals and secures your financial future.