By Susan Edmunds of RNZ
Some borrowers refixing their home loans have the opportunity to cut 10 years or more off their mortgages and save hundreds of thousands of dollars in interest.
A year ago, the average one-year special home loan rate was about 7.3%, according to Reserve Bank data.
If someone had a $500,000 loan over 30 years, that would be $791 a week.
If they were coming up to refix their loan now and opted for 4.99%, which has been available for three years from Westpac and for a two-year term from ANZ, that would cut their repayments to $619, a saving of $172 a week.
But if they decided to continue to pay $791 when their interest rate dropped, they could clear that $500,000 loan 11 years early, and pay $269,337 in interest instead of $464,514, according to Sorted's mortgage calculator.
Mortgage adviser Karen Tatterson, from Loan Market, said those discussions were part of the refix process for her clients.
"I am coaching, where possible, to keep the repayments at least the same so that they can benefit from this. In fact it is an easy exercise to calculate the savings in interest and the reduction in the loan term and this results in some robust conversations."
She said it was worth paying down debt if people could.
Head of Link Advisory, mortgage adviser Glen McLeod, agreed.
"Deciding on the best strategy to reduce interest costs depends on individual circumstances. I often advise clients to keep their current repayments the same, wherever possible, to pay down their mortgage faster and save on long-term interest costs.
"However, for some homeowners, reducing their payments may work better for them financially, depending on their circumstances and goals."
Brooke Davies, a home loan specialist at Westpac, said the bank was having lots of these conversations with customers.
"This obviously only applies to people who are finding their repayments affordable, but for those people, higher repayments can save them on interest costs in the long run."
She said people could keep their loan terms the same so they could reduce their payments again if they needed to.
"I recently had clients who wanted to smash out their mortgage as fast as possible, so they were planning to set the term to 10 years. But they also want to have a baby in the future. So I talked to them about setting the term to 20 years, but making the repayments at a level that would pay off the loan in 10 years.
"They liked the idea of having the flexibility to go back to the minimum payments if there's some substantial change in their financial circumstances if a baby arrives."
