Many who think they can't live on their current income are frittering a bigger chunk of it away than they realise.
Gulp. "Did I really sign up for an eye-wateringly large mortgage?" That post-borrowing regret is all too common.
Whether they've bought a first home, upgraded, or extended the mortgage to pay for building works, many Kiwis, and Aucklanders in particular, have saddled themselves with way more debt than they care to think about.
Loan Market mortgage adviser Karen Tatterson says her average Auckland loan value is a rather sizeable $650,000. I've spoken to Aucklanders who are worried sick about the size of their mortgage, knowing it just takes one of a couple to lose their job or fall sick and the roof over their head will be gone.
There's no magic to getting rid of your mortgage faster. It involves, as Go2Guys mortgage adviser Campbell Hastie says, paying more, paying more often, and paying more more often.
To do so, homeowners need strategies. These strategies aren't rocket science but can make debt more manageable:
When I say there is no magic, a budget coupled with a big dollop of personal honesty is the nearest thing to it.
Budgeting frees up inefficient spending to direct at paying down principal. It works because you have to learn to limit spending on certain categories rather than treating your income as one big pot of money. It will mean exercising restraint and choosing luxuries carefully.
Many Kiwis who think it's impossible to live on their current income are frittering a bigger chunk of it away than they realise. If it feels like torture, reposition your thinking to cherish the home you're working to pay off.
• Talk about it
Managing money has a big psychological component and talking to someone about it can help you to ride out the worst years until inflation and principal repayments reduce the debt to a more manageable level.
Discuss creative ways to find more money, and look for solutions to your financial worries. Those conversations should include how your household can redirect spending. And remember, owning your own home has always required financial sacrifice for a few years.
• Divert pay rises and bonuses to your mortgage
Every time your pay goes up, divert the additional income to your mortgage. This is a very effective method of paying off the mortgage faster, says Andrew Bruce, president of the Auckland Property Investors Association. Make sure you do the same with bonuses.
• Trim your rate
Banks have a small amount of leeway when it comes to interest rates. Negotiate with yours for a lower rate to keep your business.
• Review the structure
Restructure your mortgage, says Glenn Stevenson, head of mortgages at ANZ.
Rather than putting the entire mortgage on a fixed rate, leave a portion floating or in revolving credit. The latter works like an everyday account and home loan in one, says Stevenson, allowing you to reduce the balance on payday, so the outstanding capital is lower for a good part of every month. Only financially disciplined people should use revolving credit mortgages.
• Pay fortnightly
It's a bit of an old chestnut, says Craig Pettit, mortgage adviser at Loan Market, but paying half your monthly mortgage payment fortnightly will save you money in two ways.
First, banks calculate interest on the daily outstanding loan balance, so more frequent payments reduce the debt faster. Second, there are 26 fortnights in a year rather than 24. It means you're paying nearly 13 months' of loan repayments every 12 months.
• Shorten the mortgage term
In today's market, many home buyers are choosing 30-year terms or even interest-only payments because they simply can't, or think they can't, pay any more a month.
Shortening the term as soon as is possible, or overpaying to create the same effect, will pay off handsomely. A 25-year, or even 20- or 15-year term, results in significantly less interest being paid.
"Human nature being what it is, most people just go with the payments or term the bank has let them have, which means they end up paying mortgages off in the 30 years or 25 or whatever," says Hastie. "Some do better but most wouldn't."
• Keep paying when the interest rate drops
There isn't much room for interest rates to drop at present, but if they do, continue to pay the higher loan amount, says Tatterson.
If your monthly payment drops by $250 after an interest-rate cut, but you keep up the original repayments, you could save tens of thousands of dollars of interest over the life of the loan, she says.
• Round your payments up
If your monthly payments are, say, $1629.17, you might round up to $1650 or $1700, says Pettit. The overpayments reduce the outstanding principal and therefore the interest payments each month.
They also create a buffer in your mortgage account, which can be fallen back on if you can't make a payment at some point in the future. Beware, however, says Hastie that your bank doesn't charge a penalty for overpayment. Some do.
• Be wary of paying for advice
Some companies offer debt-reduction strategies at a cost. The "secrets" of paying off the mortgage and becoming debt-free aren't so secret. Federation of Family Budgeting Services advisers will give you the same guidance for free and they can often help mentor you through the process.
• Rent out rooms
If your home has spare rooms, let them to get a return on your capital. It's not going to kill you to do this for the first few years of the mortgage.
Bruce recommends renting out a room through Airbnb. Less work, however, is to let it to a foreign student. Working overtime or a second job can help in those early years of mortgage repayment.
• Resist buying a new car
Often borrowers add the price of a new car to the mortgage. This returns you to square one. As Rob Collins, general manager of NZCU Auckland, points out, $20,000 paid off on a three-year personal loan at 12.5 per cent will cost $4086.61 in interest.
A $20,000 car added to a 5.5 per cent mortgage over 15 years will cost $9414.68 in interest. Subscribe to the concept of bangernomics and just don't buy another car. Your mortgage is more important.
Ultimately it's up to you. But the sooner you start on some of these strategies, the sooner that monthly sinking feeling related to the mortgage payment will go away.