I was recently listening to a couple of the sport scientists behind the NZ rowing team, one phrase they mentioned that struck with me was; ‘you need to be able to measure to be able to manage effectively’.
This certainly runs true for a mortgage. As mortgages are decades in length it is an easy habit to just let them run their natural course, which is only making the minimum repayments. Unless you have a meaningful way to measure your progress it will often seem that what you are doing is merely a drop in the ocean. An example of this is making regular extra repayments. Say you have a $380,000 mortgage and are able to pay an extra $250 a month. $250 against $380,000 seems very little and unless you understand the end outcome you may eventually chose to spend this money elsewhere.
This $250 a month, paid consistently will result in paying off your mortgage 6.5 years earlier and save you over $114,000 in interest (assuming a 6% interest rate). Understanding this measurement will make the desire to maintain the repayments much stronger.
This is also one of the easiest mortgage aspects to measure. Offsetting your interest costs, which can give similar results, are far harder to measure without specialist tools. I often hear, ‘we have had a revolving credit (or offsetting account) but got nowhere with it” but while they had a useful ‘loan product’ they had no means to measure the impact of what they were doing and could not see that little gains early on mean substantially savings on the entirety of the mortgage.
Having tools available to measure and monitor your mortgage is always going to maximize your results by providing the feedback that you are making progress. They are certainly an important part of being able to getting ahead with your mortgage.
The information contained in this article is of a general nature and should not be taken as advice. It reflects the opinions of the writer only and does not necessarily reflect the opinions of New Zealand Home Loans