Reducing your term

Any additional payments you make towards your home loan reduces the interest costs substantially. Pretty much all the mainstream banks in NZ calculate your interest cost on the daily balance, so even incremental additional payments can have surprising results. Below are some examples of additional weekly payments towards a home loan of $400,000 on a rate of 4.5%.

$120 per week extra could lead to being mortgage free 10 years earlier for some and interestingly it is roughly the amount a boarder in Auckland would be willing to pay for an unused room.

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Making $1 of extra payment per week – leads to a saving of almost $1 in interest over the term of this home loan. Illustrated below $120 pw week would wipe out around a third of the total interest bill for a home of $400,000.

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Committing to additional payments can be difficult if your budget is changing, so most people tend to use a revolving credit or floating home loan to allow for additional payments. Additional payments can be made through the internet manually or setup as an auto payment. Auto payments can be adjusted at anytime.