08 MAY 2020 | IN LENDING | JEFF ELIAS, FOUNDER, FINANCIAL ADVISER
Press play to watch "4 Ways to Save More on a Mortgage in Any Economy"
Most Kiwis know this simple fact: paying less interest to the bank means more money in your pocket. Almost no one uses the strategies correctly to pay off a mortgage the FASTEST way possible.
Here is your guide for how people can save 20 years or more on a mortgage without increasing regular minimum repayments. Obviously, the results vary depending on your situation, but our plans shave 18 years off people's mortgage on average. Many people reduce their mortgage to 10 years or less.
If you think you know the recipe, you're probably wrong.
Many people think they know how to save the maximum on their home loan, but leave $10,000s in the bank's pocket....and that's the way the bank likes it.
Scroll down to "The Recipe" to find out the secret.
Know the right ingredients
There are 3 main ingredients to paying a mortgage off the fastest way possible. Even if you are familiar with them, nearly EVERYONE gets the recipe wrong.
1. Offsetting your mortgage
Many banks offer a revolving credit or an offset account for a portion of your mortgage. This means you have the ability to not pay interest on that amount. Anytime you don’t have to pay interest, you save money. Therefore, this strategy is an excellent way to pay off your mortgage faster and save even more than simply getting the lowest interest rate.
But be careful. If you have too big or too small of a revolving credit or offset loan you will be paying more interest than you have to.
2. Splitting your loans
Splitting the home loan into multiple fixed loans spreads your risk across multiple years. This is typically called a hedging strategy. If interest rates go up, it will only affect a portion of your mortgage, not all of it.
How do you split your home loan exactly?
It into depends on your situation. There is no one right way for everyone. A financial adviser with a mortgage debt reduction specialty will be able to analyse your situation and give you the best advice.
3. Paying extra repayments
Paying more than the minimum repayments is always important to paying off your mortgage faster. The two main ways to do this are making lump sum repayments and increasing your regular repayments.
Which way is right for me?
Though making lump sum repayments and increasing your regular repayments do the same thing, a mortgage adviser with a mortgage debt reduction specialty will know which one is the right way for you.
This is where most people make the biggest mistake when attempting to pay off their mortgage faster.
Many people have a combination of offsetting, splitting their loans and making extra repayments, and several may have all three.
But almost no one puts all three ingredients together in the way that saves them the most money and shaves off the maximum years.
Usually money is left on the table and people pay more than they have to.
The #1 deciding factor for whether you will save the most money on your mortgage lies with who is giving the advice.
Think about it like this, without a coach you can kick the ball around and possibly score some goals, but you won't win the championship.
The #1 deciding factor for saving the maximum on your home loan is WHO is advising you.
If you are planning to ask your bank how to save the most money on your mortgage, you will be disappointed. Slashing the total interest you pay is not in the interest of the bank (...pun intended). The interest you pay is how the bank makes their money.
On top of that the average bank staff has 6 months experience at their role, so the person you speak to about your mortgage is likely to not have in-depth knowledge of mortgages, let alone mortgage debt reduction.
The average mortgage broker doesn't know
Most mortgage brokers are great at securing the lowest interest rate and cash contribution from multiple banks, but they usually don't specialise in mortgage debt reduction....like a Futurebound adviser.
Training for mortgage brokers does not include how to pay off a mortgage faster. Many mortgage brokers that do give advice about paying down a mortgage give only 1 or 2 conventional strategies, but have no idea how to save the maximum amount of interest.
A financial adviser who specialises in mortgage debt reduction
There is a rare breed of mortgage adviser who has studied mortgages and bank products to create customised mortgage debt reduction plans based on your financial goals. (That's what I do.)
You need more than a mortgage broker. You need someone who can find savings beyond the interest rate and possibly save you $100,000s without tying you to a restrictive budget.
You should pick your lifestyle. It's your money.
A financial adviser who specialises in mortgage debt reduction will do 5 essential things differently than a mortgage broker:
1. Craft a customised mortgage debt reduction plan that maximises your savings
2. Consider your financial goals when creating your mortgage debt reduction plan
3. Only include the strategies that will allow you to achieve your financial goals
4. Provide guidance for implementing and executing the plan
5. Provide support to keep you on track and track your progress year after year