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Now is a great time to review your loan structure. Chances are, due to the high interest rate environment we are in, you will likely be coming off lower rates than what’s available now and for some time.
Regardless of whether you have a loan due to be refixed soon or not, it’s always worth reviewing to ensure that it’s set up to meet your current and future plans and goals.
It may have been some time since you last did this but plans, circumstances, jobs, income and life stages change so it is vital you review to make sure the structure suits you and minimises interest paid to allow you to become debt free quicker.
Economic and interest rate forecasts also change so this is another reason to review to ensure the structure takes this, and your interest rate strategies and risk appetite into account.
The review may be as simple as a quick health check to confirm its suitable or may be more in depth and involve restructuring, breaking and refixing, tweaking the repayments, interest only periods, increased borrowing for home improvements etc.
Even minor changes such as increasing repayments can have a big impact on how quickly you can become debt free and reduce your interest costs, though this may be a challenge in the current high interest rate environment.
There are other ways to reduce interest costs such as utilising a revolving credit facility. All banks have this type of facility, ANZ call it a Flexible Home Loan, ASB an Orbit, BNZ Rapid Repay and Westpac Revolving Credit etc.
The key benefit of revolving credit is that it can save you interest by reducing your daily loan balance as much as possible. Revolving credit loans are transactional accounts, like an overdraft in many ways. You have your salary paid directly into this account thus reducing the balance, as interest is calculated daily you keep the balance as low as you can for as long as you can. You can also make lump sum payments into the account and withdraw again when needed.
Another way is an offset loan, these work by linking your savings account to a loan and you only pay interest on the difference between the two balances. For example, you have $50,000 in savings and an offset loan with a balance of $100,000, the two accounts are linked so you only pay interest on the difference – $50,000. These types of account are great for those who need to keep funds separate (e.g. provisioning for tax & GST) but want to use those savings to reduce interest costs. Only Westpac, Kiwibank and BNZ currently offer these facilities.
These are just some of the options available to assist in paying the mortgage off quicker, I am here to help so please get in touch to discuss as you could shave years off your mortgage and save money!
