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How to manage your mortgage and pay off your home loan early

Reading time: 11 minutes

Left on their default settings, home loans are typically set up in favour of your lender, as you’d expect. Sure, we get a home out of it, but they get a decades-long steady stream of repayments from us, with heaps of interest on top.

That said, as borrowers, we’ve actually got far more options than we typically realise when it comes to reshaping mortgages a bit more in our favour.

By pulling some levers here and there – even just slightly raising our repayments, for instance – we can tip the scales to our side and save immense amounts of interest over time. Here’s how to tweak your settings so paying off your mortgage doesn’t drag on any longer than it has to.

In this guide

Stay ahead of mortgage rate changes

Tips and tricks to stay on top of your mortgage

How to pay off your home loan faster

What to do when your mortgage feels unbearable

How much quicker could you be rid of your mortgage

Mortgage FAQs

How to manage your mortgage and pay off your home loan early

That said, as borrowers, we’ve actually got far more options than we typically realise when it comes to reshaping mortgages a bit more in our favour.

Stay ahead of mortgage rate changes

When interest rates change, it’s a great time to refocus on your mortgage – especially when there’s a sudden turn, like the shift from cheap money (a time of low interest rates) to money that’s far more expensive (much higher rates). To give an idea, here’s the lay of the land for mortgage rates from interest.co.nz.

These seemingly tiny shifts in percentages translate into tens of thousands of dollars over time, so there’s no better moment to prepare – and find a way through a time of higher repayments.

If you’re feeling the pinch particularly because of rate changes and need support, help is at the ready. See below for what to do if your mortgage feels unbearable.

Tips and tricks to stay on top of your mortgage

Shop around for your loan

Bank or broker? Your choice of lender and loan type can make tens of thousands of dollars of difference over time, so it literally pays to shop around. Here’s our guide to shopping for a mortgage.

Refinance to get better terms

Refinancing (also called remortgaging) is when you move your mortgage to another lender in order to get better terms. It’s a great opportunity to save thousands on interest and finish paying off your home more quickly. Here’s how to refinance your mortgage.

Fix and float

On one hand, a fixed rate can give us the certainty of knowing what our mortgage repayment will be, which is why many of us opt for a fixed rate for 2–5 years. However, the fixed rate option generally doesn’t offer much flexibility for extra repayments if you find a bit of spare cash – which would save heaps in interest.

On the other hand, a floating rate goes up and down in line with the Reserve Bank tweaking the Official Cash Rate. While these floating rates are less predictable, they allow you to make higher repayments without a penalty, so you can top up and save tons in interest. Here’s our guide on mortgage types.

To take as much advantage of the plus-sides of both options, many of us have most of our mortgage fixed but also have some on a floating rate.

Top up your repayments

Fixing your mortgage rate can give you certainty about your repayments. But even if your mortgage is fixed, you can typically increase your repayments somewhat above the required amount without getting hit with a penalty.

For example, your mortgage repayment may be $3000 a month, but you may be able to repay as much as $3500 on your fixed mortgage without breaking the deal. Check with your mortgage broker or lender.

How much difference could this make for you? Looking at our mortgage calculator, on a $500,000 loan at 7%, your required repayments would be $1630 a fortnight. You’re on the hook to pay $560,000 just in interest over a term of 25 years – paying back over $1 million, more than twice the initial loan amount. Ouch.

But if you add $100 to your repayment each fortnight, your interest charges come down to $469,000 – saving you more than $90,000 in interest, with the mortgage finishing close to 3 years earlier. Add $200, and you save $154,000 and shave 5 years off repaying your loan. Much better.

How much interest you could avoid by topping up repayments on a $500,000 loan @ 7%

Fortnightly repayment	Interest to pay	Interest avoided	Total to repay	Time to repay
$1630	$560,000	$0	$1,060,000	25 years
$1730	$469,000	$90,000	$969,000	22 years
$1830	$406,000	$154,000	$906,000	20 years

Repay half your monthly amount each fortnight

If you repay your mortgage monthly with 12 repayments a year, consider switching to fortnights – but pay half your monthly amount. Because there’s 26 fortnights in a year, you’ll end up paying the equivalent of 13 monthly repayments each year.

How much could you save by doing this? On the $500,000 loan at 7% over 25 years, repaying $3534 monthly will mean you pay $560,000 in interest. If you halve that repayment to $1767 every fortnight, your interest plunges to $443,000 – close to $117,000 less in interest, and you finish repaying 4 years earlier.

How much interest you could avoid by paying fortnightly on a $500,000 loan @ 7%

Repayment	Interest to pay	Interest avoided	Total to repay	Time to repay
$3534/month	$560,000	$0	$1,060,000	25 years
$1767/fortnight	$443,000	$117,000	$943,000	21 years

(Note that if you ask the bank for a fortnightly rate they will give you an amount that works out roughly the same each year as the monthly rate – you specifically need to ask to pay half the monthly rate. It’s the same on our mortgage calculator – enter half the monthly rate and then select fortnightly to see the results.)

Refinance to a lower rate when available, but keep your repayments up

When (not ‘if’) mortgage rates come down in the future, you could find yourself able to remortgage with a much better deal. Many of us will see this as a way to have extra play money because of the lower repayments, but it’s actually the perfect moment to keep your repayments constant – you’re used to them, after all – and save immensely.

For example, let’s say on that $500,000 loan at 7% over 25 years, you keep your repayments at $1630 a fortnight and then refinance to 6%. How much of a difference would this make? At 7% you’d pay $560,000 in interest, while at 6% you’d end up with an interest bill of $370,000 and finish 4 years earlier. That’s $190,000 in interest saved!

How much interest you could avoid on a $500,000 loan @ 6% instead of 7%

Fortnightly repayment	Interest to pay	Interest avoided	Total to repay	Time to repay
$1630 at 7%	$560,000	$0	$1,060,000	25 years
$1630 at 6%	$370,000	$190,000	$870,000	21 years

Here’s what to do with a windfall

May it happen to you often: you come into some money via winnings, an inheritance, selling a business, or a welcome gift. While a huge lottery win might allow you to erase your mortgage entirely, even smaller lump sums can make a sizeable difference to your loan repayments.

Say if you dropped $30,000 in one go on your $500,000 mortgage (7% over 25 years). Doing so while keeping your repayments constant would see you finish 3 years early and pay $438,000 in interest overall – that’s $122,000 less. Not bad at all.

How much interest you could avoid by repaying $30,000 on a $500,000 loan @ 7%

Fortnightly repayment	Interest to pay	Interest avoided	Total to repay	Time to repay
$1630	$560,000	$0	$1,060,000	25 years
$1630 + $30,000	$438,000	$122,000	$938,000	22 years

Lump sums are best paid onto a floating rate mortgage or just after a fixed rate ends, to avoid any penalties for overpaying too much.

Make it more than the minimum

Like all debts that have a minimum repayment, topping up more than what’s required on your mortgage saves you loads in interest and pays it off that much more quickly. How much more? Check our mortgage calculator.

What to do when your mortgage feels unbearable

If you’re having trouble making ends meet, it’s best to be as proactive as possible. In the worst case scenario, you could lose your home and the lender will need to sell it via a mortgagee sale. But in most cases there are options so you avoid getting to that point.

Reach out to your bank first

Stretch the term of your mortgage

Consider the interest-only option

Defer your payments temporarily

Money Talks

Reach out to your bank first

The best thing to do is contact your lender before getting behind with repayments. Remember, their business relies on borrowers keeping up with repayments. They typically lose money if they have to take back your house and sell it, so it’s in their interest (excuse the pun) to work with you so you can get back on track.

Stretch the term of your mortgage

One option you can explore when you’re in difficulty is to lengthen the term of your mortgage, which can lower the repayment amounts.

Unfortunately, as you can see if you plug your figures into our mortgage calculator, while you do save on repayments, the loan gets incredibly more expensive when you take longer to repay it. But it can be a short-term solution to get by.

Consider the interest-only option

Another alternative is switching to an interest-only mortgage, where you only pay for the cost of borrowing and don’t pay down the loan principal at all. Although you are putting off repaying your loan, at least you are covering costs and it is not getting more expensive.

Defer your payments temporarily

In dire circumstances, as you explore your options with your bank, another alternative may be to put off repayments entirely for a while.

It’s important to know that interest will still be added during this time. So deferring comes at a cost, and the mortgage becomes that much more expensive. You only end up owing even more.

Money Talks

It’s more than okay to ask for help. For free personalised support, reach out to the team at MoneyTalks on 0800 345 123, help@moneytalks.co.nz or text 4029. You can even use their service anonymously if you prefer.

Featured image background abstract image

How much quicker could you be rid of your mortgage

Our mortgage calculator helps you calculate your home loan payments, as well as showing you how to reduce interest. Find out how much of a difference tweaking your mortgage settings will make as you pay off your home loan.

Try our mortgage calculator

We’re looking at a steep hike in mortgage repayments because of the change in interest rates. Is this normal?

In short, no. Mortgage rates follow the OCR (Official Cash Rate), which historically has tended to rise gradually and plummet quickly. This time around it’s risen dramatically, and for many who are ending fixed-rate mortgage terms, the leap in expense will be shocking. It’s best to talk to you your lender if you think this will cause financial stress, but other options and support are available.

The jump in our mortgage repayments coming up does not look doable. What can we do?

It helps to be proactive, and it sounds like you are looking ahead and planning. Talk to your lender first, to explore options such as stretching your loan term or switching to an interest-only mortgage for a while to get through. For more support, we highly rate the team at MoneyTalks – you’ll reach them on 0800 345 123, help@moneytalks.co.nz or text 4029.

If I’m on a fixed interest rate, can I increase my repayments?

It’s important to know that you typically can overpay up to a certain amount without triggering a penalty or jeopardising your fixed rate. Ask your mortgage broker or lender about your options. This is definitely worth exploring to take advantage of both the steady rate and the potential savings in interest. Even small overpayments make a sizeable difference.

If I’m on a fixed interest rate, can I make a lump sum repayment?

Lump sums are best built up to be used precisely when your fixed rate finishes – this way you don’t break the terms of the fixed rate, but still benefit from the lump sum reducing your interest significantly. It’s definitely worth doing.

What’s the point of splitting your loan between fixed and floating rates?

This strategy is typically for those who would like the certainty of a fixed rate, but who also want to have the flexibility to reduce their mortgage by overpaying. The idea is you place a portion of your mortgage on a floating rate to funnel any extra cash to, while keeping the rest on a steady rate to enjoy that predictability.

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How to manage your mortgage and pay off your home loan early

Reading time: 11 minutes

In this guide

How to manage your mortgage and pay off your home loan early

Stay ahead of mortgage rate changes

Tips and tricks to stay on top of your mortgage

Shop around for your loan

Refinance to get better terms

Fix and float

How to pay off your home loan faster

Top up your repayments

Fortnightly repayment

Interest to pay

Interest avoided

Total to repay

Time to repay

$1630

$560,000

$0

$1,060,000

25 years

$1730

$469,000

$90,000

$969,000

22 years

$1830

$406,000

$154,000

$906,000

20 years

Repay half your monthly amount each fortnight

Repayment

Interest to pay

Interest avoided

Total to repay

Time to repay

$3534/month

$560,000

$0

$1,060,000

25 years

$1767/fortnight

$443,000

$117,000

$943,000

21 years

Refinance to a lower rate when available, but keep your repayments up

Fortnightly repayment

Interest to pay

Interest avoided

Total to repay