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Interest rate cuts don't translate to financial progress!

April 18, 2016

In New Zealand it seems we've been indoctrinated on trying to 'get the best deal' and negotiate the 'lowest possible interest rates'. We often forget that it's the overall cost of the loan or mortgage that is the most important thing to remember. Banks make money off you having your mortgage with them for as long as possible.

With the surprise cut to the OCR earlier this month, now is a great time to really analysis your mortgage and try to structure things so you pay the least amount of interest possible.

On an average mortgage of say $350,000 with an average interest rate, over a standard term of say 25 -30 years, the total cost of that mortgage will be around $1million! With house values increasing in Auckland, many residents will have mortgages well in excess of this amount, so it’s even more important for these to be structured correctly to give you the opportunity to pay it off faster than what the bank’s want you to.

In many ways the interest rate is somewhat of a "red-herring". Irrespective of your interest rate you will ALWAYS save more money by paying off debt as fast as your situation allows but you must be strategic about it.

You need to ensure you are doing it the smartest way possible so that you have maximum control and flexibility. i.e. don't just increase your repayments or shorten the mortgage term as you can't easily get your money back and you are committing yourself to higher repayments.

Yes, low interest rates are a great opportunity to get ahead faster but unless you have a plan to put those savings to good use, it’s just going to get lost. For most people it’s just going to slip through your fingers. You need a reason not to spend those savings or to track it otherwise it will get frittered away. You need a plan that’s motivating enough to take those savings and pay off your mortgage quicker and get in control of your money.

For an independent and impartial review of your finances visit enableme.co.nz and request a consultation with Dianne, the local financial personal trainer now in Botany South.

Image courtesy of renjith krishnan at FreeDigitalPhotos.net

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