With the current financial outlook of people paying mortgages until they are 70 it is important to have a plan in place to avoid this scenario. For most New Zealanders with mortgages they will be balancing a hefty mortgage with having a family. The net result of this is usually all money they earn is spent and that is okay, as long as it’s planned for.

There are a couple of ways to setup your loan structure for this type of scenario which will still allow you to pay it down quicker. On top of this is recognising that money is tight now but that is not forever. If you look at a family with two children, as an example, there is probably $100 per week per child in costs. With the children there may be nothing left over at the end of the month but when the children are gone you are looking at having a monthly surplus of $866. Utilising the surplus, when available, will allow you to make great progress in paying off your mortgage.

I’ll illustrate this for a family with a $300000 mortgage, they have 2 teenage children. I will show them leaving home in 2018 and 2020, reducing household costs by $100 per week each. The graph shows the impact of this on their mortgage, dropping from a term of 30 years to under 15. This would also save approximately $235,000 in interest payments for the couple.

It is important to understand with a mortgage that there will be times no money is available and there will be times you do have surplus funds. Being able to plan for this will mean you are able to pay off your mortgage far quicker.