The real cost of owning a house, for most of us, is the cost of funding it.  Let’s assume you buy a $500,000 house and borrow $420,000 as a mortgage. This $420,000 would cost $486000 in interest over a 30 year term (assuming 6% interest rate).

However over an 18 year term the interest cost is $268000, meaning you can save $218,000 or over 40% over the original price of your house. So what is involved to reduce a term from 30 to 18 years?

• The simplest way is to increase your loan repayments by $150pw. A sacrifice now will save you a substantial amount and almost half the time you are in debt for.
• For one of our clients, a monthly surplus of $330 was all that was required to have them debt free in 18 years. For this they needed a properly structured mortgage using their incomes to offset some of the interest cost.
• Extra payments at the start will certainly help achieve this result. A working couple with no children may well be in a position to make extra repayments to start with and then slow off and still clear their mortgage in 18-20 years.

So while shrewd negotiations may help save you some money on purchasing a house, being smart with your mortgage on said house will be much more financially beneficial.

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.