Being Mortgage-Savvy Could Save You Over $100,000
13 March 2013
Being Mortgage-Savvy Could Save You Over $100,000
CANSTAR releases annual home loan star ratings report today, assessing 147 home loans from 13 lenders.
Buying a home is one of the most exciting, emotive – and expensive – activities you’re ever likely to undertake. Financial research and ratings organization, CANSTAR, suggests that being mortgage-savvy could potentially save typical home owners over $100,000 over the life of their loan.
“The New Zealand property market is booming right now, which creates a sense of urgency for some buyers,” says CANSTAR General Manager – New Zealand, Derek Bonnar. “In their enthusiasm to get into the market, they sometimes don’t stop to consider how to best structure their mortgage. Being mortgage-savvy is so important though, because it’s the biggest debt that most people are ever likely to have and it can cost hundreds of thousands in interest payments over the years.”
What does it cost?
A $300,000 mortgage on current variable rates over 30 years will cost the following:
|Term of loan||30 years|
|Total amount of interest paid||$333,693|
“For many mortgage holders, their typical $300,000 loan can cost them almost $635,000 by the time they pay it off,” says Mr Bonnar. “That’s assuming our currently-low interest rates remain; if rates were to rise by two percent, that same mortgage would suddenly cost almost $780,000!”
How to save?
There are plenty of ways to save; Mr Bonnar suggests the following tips, which combined could save more than $100,000 over the life of a $300,000 mortgage.
1. Negotiate a lower interest rate.
“Financial institutions do want your business and some will reduce their rate to attract you,” says Mr Bonnar. “Online comparison tools mean that consumers are more empowered than ever. Just a 0.25% reduction will make a significant difference.”
A 0.25% reduction on standard rates can save homeowners $17,000 in interest costs.
2. Plus keep your repayments the same.
Negotiating a lower interest rate and maintaining your monthly repayments at their previous level can save you even more. “If you can get that 0.25% reduction, resist the temptation to reduce your monthly repayments,” says Mr Bonnar. “It’s crazy – when the Reserve Bank lowers rates, the focus is always on the amount that homeowners will save each month in monthly repayment costs – the real story, though, is how much they could save if they didn’t reduce their monthly repayments.”
A 0.25% reduction on standard rates, plus keeping repayments the same, can save homeowners a total of $41,400 in interest costs.
3. Plus increase your regular repayment.
“It’s easier said than done, but making an effort particularly early-on in your mortgage, can make a huge difference,” says Mr Bonnar. “A mortgage can be a bit of a set-and-forget cost; we often intend to increase our repayments down the track when our salaries rise, but we often don’t. Career changes, kids and bigger houses can get in the way. So make the sacrifice now!”
Increasing repayments by $100 per month on the above example can save homeowners a total of $81,300 in interest costs.
4. Plus make ad hoc payments.
“While it’s more fun to spend them on something else, occasional ad hoc payments can make a significant difference to your mortgage as well. A tax refund, for example, or a work bonus – every extra payment helps.
A $3,000 lump sum every five years onto your $300,000 mortgage could save approximately $14,000 in interest costs.
Choosing the best value mortgage to begin with is also vital and Canstar has helped to take the hard work out of this choice with the release today of their annual home loan star ratings report. The report looks at 147 home loans from 13 lenders across seven categories of floating, fixed rate and line of credit loans for both residential and investment purposes. The star rating report is a useful way for mortgage holders to assess how their current lender compares, as well as to narrow down products worth investigating further.
So – who scores well?
“Across the seven loan categories assessed, several mortgage providers stood out as offering 5-star value,” says Mr Bonnar. “These included Kiwibank, achieving a 5-star rating in six of the loan categories, followed closely by Westpac, with a 5-star rating in five categories. Bank of New Zealand achieved 5-star ratings in both the Standard Home Loan and Investment Home Loan categories and ANZ were 5-star rated in the Line of Credit, Residential Long-term and Investment Long-term categories.”
“The best value mortgage for each home owner is going to depend on their individual situation, but with potentially many thousands of dollars to save, taking the time to shop around is a great return on investment.”
CANSTAR provides Australia and New Zealand's only fully interactive online research service in retail and business finance.
Founded in 1992, CANSTAR Pty Limited (formerly CANNEX) is Australia and New Zealand's premier researcher of retail finance information for over 250 institutions such as Banks, Building Societies, Credit Unions, Finance Companies, Brokers, Mortgage Originators, Life Companies and finance related Internet Portals.
CANSTAR customers use the extensive database for competitor analysis as well as a means of disseminating their product range. CANSTAR also distributes this information to print and electronic media for publication and to Agents, Accountants, Brokers and Internet Portals for use in advising their clients.
0What are the CANSTAR star ratings?
CANSTAR researches, compares and rates the suite of banking products listed below. Results are freely available to consumers who use the star ratings as a guide to product excellence. The use of similar star ratings logos also builds consumer recognition of quality products across all categories. Please access the CANSTAR website at www.canstar.co.nz if you would like to view the latest star ratings reports of interest.