Ways to reduce your home loan to 15 years

What a fantastic idea if you can pay off your mortgage in 15 years and save more than $200,000 on a $300,000 mortgage!

Such an idea is workable in the current financial scenario of low interest rates and banks competing to reduce interest rates and wooing clients to borrow. What is needed is your commitment and discipline to set goals to do so.

With interest rates as low as 5.75% for six months and 5.95% for one year, you can pump in more and more money back into your mortgage. Ask your bank or mortgage broker about your repayments if you set the goal of repaying in 15 years and become debt free to enjoy your life thereafter.

If you are able to increase your weekly payments by $79, you would finish your loan ten years earlier and save $145,905.

If you increase your weekly repayments by $165, which you can do even by keeping a boarder and charging him or her $165, you would become debt free in just 15 years. All these calculations are based on the assumption that the interest rate remains at 6.5% or less during the currency of loan.

I would like to clarify that there is no magic bullet to pay your loan faster except by properly structuring your household expenses and repaying as much as possible.

Paying off your mortgage early entails commitment and sacrifice, but it can save you thousands of dollars in interest as demonstrated in the above example. The sooner you own your home free and clear, the better off you would be financially.

If you have any questions, contact me either by phone or through email.

Bank lending reaches 95%

Westpac has joined ASB, Sovereign, AMP, Kiwibank and BNZ to consider loan applications up to 95% of home value. ANZ and National Bank are the only banks who do not consider loan applications beyond 90%.

But for loans at such high LVRs (Loan to Home Valuation Ratio) as 95%, banks have strict lending criteria including (1) A clean credit check (2) Very good conduct of bank accounts such as no unauthorised overdrafts or over-drawings (3) Stable long-term job or business and (4) Uncommitted monthly income of around $1000.

Uncommitted monthly income is your monthly surplus, after paying for regular commitments including loan repayments, hire purchase, electricity, water, rates, food, clothing and other expenses at the time of loan application..

Faced with reducing loan books, banks are today desperate to lend to creditworthy customers. With low interest rates and no personal debt or low debt, it would not be difficult to meet these criteria.

But keep in mind that 5% deposit has to be saved deposit and your savings should be reflected through transactions in your bank account.

It is understandable that by lending 95%, banks are exposing themselves to high risk and hence would be careful in selecting customers.

Suresh Sharma is Director of Cherry Mortgage Solutions based in Auckland. His personal disclosure statement is available on request. He can be contacted on 021-827575 Email: cherrymortgage@xtra.co.nz Web: www.cherrymortgage.co.nz

Disclaimer: The above article should be taken only as a guideline and not as personal advice. Mr Sharma and the management and staff of Indian Newslink absolve themselves of all responsibilities or liabilities in this connection.