Home loans lasting longer than expected in NZ
Expectation vs Reality: Home loans lasting longer than expected in NZ
Research released by BNZ today reveals New Zealander’s expectations are out of step with reality when it comes to paying off home loans.
Seventy three per cent of New Zealanders who have a home loan expect to have it paid off by the traditional retirement age of 65. However, the reality is that far fewer will achieve this. Recent BNZ research, conducted by Colmar Brunton*, shows almost one in three will be older than 65 when they pay their home loan off. [Extract 1].
The research looked at people’s expected retirement age and found that three out of five people expect to be working past 65 years of age. For nearly half (48%) of people this was a choice to stay busy and active by working part time. [Extract 2].
However for Craig Herbison, BNZ Director Retail and Marketing, the alarming figure is the amount of people who have said they’ll have to keep working for financial reasons. Almost a third said they’d have to keep working to have the lifestyle that they want – fifteen per cent to pay their mortgage and 13 per cent to meet other financial commitments. [Extract 2].
Herbison says it’s great that a lot of New Zealanders want to work past 65 to keep active and busy. But we want to make sure people have the retirement they want, not the one they are forced to have, he says.
“The research found people’s expectations change as they get older. We’re very optimistic in our younger years, but we’re forced to shift the goal posts as we get older. On average homeowners under 30 think they’ll be mortgage-free at 50, but fast forward to homeowners aged 50-64 and they’re projected to pay off their home loan at 66. [Extract 3].
“Interest rates are at a record low and we’re urging New Zealanders to make the most of this. Everyone’s talking about first home loans, we’re encouraging Kiwis to think about what your last loan looks like. There hasn’t been a better chance since the 1960s to get ahead and pay off your home loan faster. Now’s the time for people to take a serious look at how their loan is structured to see how much they can save in terms of time and money,” says Herbison.
The research showed, most people (63 per cent) don’t understand how much impact paying an extra $30 per week has on the length of their home loan – based on current interest rates it could knock five years off the term of the loan. [Extract 4].
People aged 65+ were the most likely to overestimate how many years they could reduce a mortgage term by paying $30 more a week. Thirty five per cent were more than five years off and thought they could reduce the mortgage term for 11 years or more.
There was also a discrepancy between what people thought their retirement years would look like and what they’d actually be able to afford to do, the BNZ research found.
Only 23 per cent of people thought they’d need to reduce spending on travel and holidays. But in reality 36 per cent of retirees have had to cut spending here. The inverse was true for mortgage and housing costs – nearly half of all people currently working thought their mortgage and housing costs will reduce, but this was only the case for 31 per cent of retirees. [Extract 5]
“We should learn from retired New Zealanders as it has important implications for both home loan repayment and future financial planning,” says Herbison.
“With home equity making up a large proportion of people’s future savings plans, how you manage your mortgage has huge implications on what type of retirement you’ll have. Fifty three per cent of home owners told us that they are relying on the value of their home to set them up for the future, so it’s vital they actively manage their mortgage. [Extract 6].
“BNZ is encouraging people to re-look at their home loan structure. Our online calculators** show paying a small extra amount now makes a significant difference later. It makes a lot of sense to consider that the lowest interest rate environment in a generation can change. So think, plan and act now to ensure you get the future you want and deserve,” says Herbison.