What’s your Mortgage Plan?
Most of us have a plan to get a mortgage. But once we've got it... do we really have a plan to get rid of it?
We probably know each other because I helped you get a mortgage. Maybe for your first home, maybe something more complex. Naturally, this is where most of my time lies - helping get funding across the line so that you can buy the home you want. No home, no money, right?
But now that you've got the mortgage - what's your plan to pay it off?
A big part of my process is helping clients structure their loan in a way that allows them to take control and slash their loan down quickly... if they want to.
But as time passes, we move on, right? We check in to refix your loan and make strategic decisions at key milestone moments - but of course I'm not there every day, sitting on your shoulder whispering in your ear "do this to save interest! Do that to wipe a year off your loan term!"... I don't think anyone would really want that!
But I do want you to have a plan - and one that you can stick to, easily.
So, what's the answer?
For more and more of my clients, it's an Offset mortgage.
So… what actually is an Offset mortgage?
An Offset mortgage links your savings account to your home loan. Instead of paying interest on your full loan balance, the bank only charges you interest on the difference between your loan and what's sitting in your linked account.
For example, if you have a $500,000 mortgage and $20,000 in your linked savings, you only pay interest on $480,000. Your money stays accessible - you can spend it anytime - but while it's sitting there, it's working hard to reduce your interest.
The clever bit? Your repayments stay the same, but more of each payment chips away at the principal instead of going to the bank as interest. That's how you shorten your loan term without changing your budget.
And yes, you could leave that money in a savings account earning 3-4%, but your mortgage is costing you 6%+. The maths is simple - offsetting wins every time.
For the past few years I've been using a simple strategy to help clients pay down their loan faster. We use an Offset loan, set up a linked account called 'Mortgage Savings', and commit to an amount to save into that account each week.
Then, when your fixed loan comes up for refix, we simply take that money out and use it to make a lump sum repayment onto your mortgage.
Then we rinse and repeat!
The numbers
Let's say you have a $500,000 mortgage at 6% over 30 years. Here's what saving a little each week into your Offset account could do:
Save $20/week: Saves $15,000 in interest, and wipes one year off your mortgage
Save $50/week: Saves $40,000 in interest, and wipes three years off your mortgage
Save $100/week: Saves $80,000+ in interest, and wipes five years off your mortgage!
Saving $100 a week could knock around 5 years off your 30-year mortgage and save you over $80,000 in interest. That's money that stays in your pocket instead of going to the bank.
And here's the thing - $100 a week is just $14 a day. A couple of coffees. A Friday night takeaway. Small changes that add up to big results.
The key here is accountability. When we catch up to refix your mortgage and I ask you how much you have in your Mortgage Savings account to bomb onto your mortgage, you probably won't be wanting to say 'nothing', right?
Is this right for you?
This strategy works best if you're the type who can leave money alone. If you're tempted to dip into savings regularly, a standard fixed rate with structured repayments might suit you better - and that's okay too.
But if you like the idea of having your savings accessible and working to reduce your mortgage at the same time, an Offset loan could be a game-changer.
So - do you have an Offset loan?
They're only offered by a few banks (BNZ, Kiwibank and Westpac), and there's a few quirks between them - so it pays to get help scoping out which option suits you best.
Kiwibank even offers a free refinancing service, so you can switch your mortgage across without any legal fees. That, plus up to 0.90% back as a cash contribution, can make it a pretty appealing option!
If you'd like to see how much an Offset loan could save you, book a quick chat and I'll run the numbers for your situation.
Remember, this isn’t personalised financial advice, and this general guidance shouldn’t be acted upon without seeking qualified, personalised help first.
