Paying more off your mortgage principal will shorten the term of your loan.

That is a simple fact that many homeowners already know.

If you put an additional $100 a month off your mortgage, you could potentially save $100,000 and shave two years off the term of your loan.

That all sounds well and good, but where do you find that extra $100 when your budget feels pretty tight right now?

Let’s dive into how you can make your dollars work better for you and save money on your mortgage.

 

Where Does My Money Go?

Sometimes it feels like the money barely touches the sides of your bank account before it disappears on mortgage payments, bills, and the costs of running a household.

It feels like the price of everything has been climbing recently – groceries, power, insurance, subscription services, and now petrol is skyrocketing. Unfortunately, wages and salaries don’t tend to go up at the same rate. The impact of these increases is being felt in many budgets.

There isn’t much you can do to negate the core price increases, other than being mindful of the electricity you are using and the products you are buying. But there are a couple of sneaky cost increases that you can combat.

Subscriptions

We are often convinced to take out subscriptions due to great introductory offers, then fall into the trap of paying the higher monthly rate as we’ve formed a relationship or a dependence on the service. This is fine if it is a service you see value in and use regularly, but if you are paying hundreds for meal boxes when half the food ends up in the bin, it’s a waste!

Also, the cost of subscriptions has steadily crept up. Spotify has gone from $14.99 a month in 2023 to $20.99 now, a 40% increase! It’s not the only one; Netflix and Disney+ have gone from $9.99 in 2019 to $17.99, and Amazon Prime has doubled in cost. This subscription creep, where small, constant increases happen over time, has pushed the average cost of watching TV to $34 a month for Kiwis!

Buy Now, Pay Later

Schemes like AfterPay can be handy if you have an unexpected bill crop up. But it becomes very easy to fall into a cycle where money from next month’s budget needs to go against a cost you have incurred now. Effectively, you are spending your money before you’ve earned it.

This can be fine if you manage it well. But if you then have to AfterPay something else the following month because the previous repayments have stopped you from being able to pay outright, you can fall into the trap of relying on Buy Now, Pay Later services. You could find yourself constantly chasing your tail to get back on top of it.

Coffee

The way we fuel our mornings has also experienced a significant price creep. Not so long ago, a cup of barista made coffee used to set you back $5. Now a cup of java runs anywhere from $7 to $9, depending on your favourite spot. This habit could be costing you $140 a month!

Make Your Money Work For You

Alright, so we’ve exposed the sneaky traps where your money could be disappearing. Now it’s time to do something about it!

Here are our best tips:

●      Avoid using Buy Now Pay Later services unless you really have an unexpected cost you ca’t cover in full. It’s too easy to fall into the cycle of owing if you use it regularly.

●      Go through your subscriptions and break up with the ones that you truly don’t need; cut those emotional ties! That includes streaming services, regular monthly deliveries, meal boxes, gym memberships… anything you pay a regular fee for and don’t necessarily use.

●      Rather than grabbing a coffee every morning, introduce treat days where you get your cup of joe. Invest in a keep cup and take a coffee from home on the other days.

●      Consider how you spend at the supermarket, could you shop the specials more, or choose supermarket own brand varieties of some products?

●      Take advantage of discount days – buy your fuel on the days that petrol stations offer better rates, try to wait for the things you need to be on special, and hang onto discount coupons.

●      Be conscious of what you are buying and why you are buying it. Ask yourself if you truly need to make the purchase or if you are spending unnecessarily.

Now that you have all this money back in your budget each month, you can choose what you want to do with it. Paying more than the minimum on your mortgage would shorten the term and reduce the amount of interest you pay, so it can be a smart choice. But, if your budget is already tight, you may choose to just inject these funds back into your grocery or petrol fund.

 

And Now The OCR Might Go Up?

Undertaking an audit of your expenses and where you can cut out unnecessary spending is a valuable exercise to undertake, especially as NZ’s biggest bank is predicting three OCR rises this year. Economists expect the OCR could climb to 3% before the year ends.

Inflation is on the rise with climbing fuel prices. Economists are taking notice of this and feel the Reserve Bank may be uncomfortable with leaving the OCR low in this environment. They do not want a repeat of the Covid era, where inflation ran rampant.

So, what does that mean for mortgage holders?

Interest rates could go up. Now is the time to review your current loan terms and interest rates in case this does happen. The best thing to do is to have a chat with a Mortgage Adviser, like the team here at Mortgage Suite, to assess what your options are.

 

Can You Help Me Save Money On My Mortgage?

Even if you don’t have interest terms expiring, reviewing your borrowing now could help you save money on your mortgage in the long term.

Many Kiwis don’t review their mortgages as much as they should. In many cases, your mortgage is structured to suit your lifestyle at the time or borrowing or refixing. But, life has a habit of changing! What suited you 2, 5 or even 10 years ago, may not be the best solution any more.

That’s why it is important to discuss your current finances and living situation with a mortgage broker regularly. We can ensure your mortgage is structured to your current needs so you aren’t paying more than you need to and are setting yourself up for a strong future.

Reach out to our team today for an obligation free chat and honest advice you can trust.