How to buy your home for less

Most people would rather not be saddled with paying off a mortgage in retirement. If you hit 65 still owing money to the bank it means working longer, or using your KiwiSaver or other retirement nest egg to pay off the debt.

Even 25 years is a long time to be paying off a mortgage. So why not reduce the mortgage term to 20,15, or even 10 years?

There's more than one good reason to get a shorter mortgage term. Apart from not working until the day you die, reducing the term saves an awful lot in interest payments.

For example, if you borrow $750,000 at 5.65 per cent over 30 years, you'll pay a total of $808,537 interest in that time on a principal and interest loan. Over 25 years you reduce the total interest bills to $651,925. That's a whopping $156,612 saving.

Over 20, 15 or 10 years you'd pay interest of just $503,497, $363,838, or $233,440. That's a huge difference. Even reducing the term by just one year from 25 years to 24 years saves $30,000 over the life of the loan. On the other hand, the monthly repayments for that one year reduction of term go from $4,674 to $4,763. That's not a huge amount to find an extra $111 a month. It's one less meal out for the family and a couple of bottles of wine each month.

If you're scared of committing yourself to a shorter mortgage period, what you can do is take out the longer term but keep a portion of your mortgage on a floating rate or have a revolving credit mortgage. That allows you to make extra payments into the mortgage whenever you have available funds. That reduces the outstanding principal, which means smaller monthly interest payments. In effect it does the same as having a shorter mortgage period.

That way you can make lump sum payments regularly, when money comes your way through bonuses or windfalls. Extra can be found by cutting unnecessary small spending and channelling it to mortgage repayments.

The most important thing, says mortgage broker Geoff Bawden, of Bawden Consulting, is to do "what works for you". For some people the 30 year mortgage, but paid down more rapidly is better than having to go cap in hand to the bank because you can't meet your monthly payments on a 15-year mortgage.

Another trick to pay your mortgage off faster is to make half a month's mortgage payment every fortnight. That way you make a total of 13 months payments every 12 months.

For example, a $750,000 mortgage at 5.65 per cent paid in 26 instalments of half a month each will cost $651.924 in interest over the life of the loan.

If you make fortnightly payments that drops to $651,118. Check out the calculator at sorted.org.nz/tools/mortgage-calculator to play with your figures.