First-home owners can pay off their mortgage in as little as 12 years if they plough back savings from record-low mortgage rates into repayments.

Banking experts say today's lending market is an ideal time for people to pay down debt if their mortgage allows it.

John Bolton, owner of Squirrel mortgage brokers, provided figures to the Herald to show how people can be debt free years earlier.

He encourages clients to pay their mortgage based on an artificially high "fixed for life" rate of 7.5 per cent.


Doing so while on a current rate of 5.25 per cent on a $400,000 loan would cost about an extra $130 a week in repayments but the extra payments reduce the life of the mortgage by 11 years and saves about $165,000 interest.

Mr Bolton, a former general manager at ANZ National Bank, said most clients could meet the extra cost of repayments if they put their mind to it.

"When rates eventually rise they'll need to pay [7.5 per cent] anyway, so why not do it now and pay the mortgage off faster?"

He said the average first-home owner with a $400,000 loan could be mortgage-free after 12 years.

That would require paying a repayment rate based on 7.5 per cent interest and giving up half of any pay increases to the mortgage.

"Over time inflation does its job in reducing the 'real' cost of a mortgage. It becomes a lower proportion of real income as salaries increase."

Claire Matthews, of Massey University's banking studies department, said interest rate savings should go straight into repayments.

"There hasn't been a lot of movement in terms of interest rates for some time ... All of a sudden things are changing, so people are taking notice.


"Unless you absolutely have to, don't change your repayments ... It can have a huge impact in terms of the total length of your loan."