tmmonline.nz  |   landlords.co.nz        About Good Returns  |  Advertise  |  Contact Us  |  Terms & Conditions  |  RSS Feeds

NZ's Financial Adviser News Centre

GR Logo
Last Article Uploaded: Thursday, March 28th, 10:13PM

Mortgages

Mortgage Rates Daily Commentary
Thursday 28 March 2024  Add your comment
Lifetime Home Masterclass

New Zealand’s first debt-free home equity release income solution, Lifetime Home allows Kiwi retirees aged 70 and above to access the wealth tied up in their home to bolster their retirement income.

Lifetime Home requires no mortgage, no debt, and no interest payments. Instead, it offers certainty and financial peace of mind when it’s needed most.

Master Class for Financial and Mortgage Advisers
Join Lifetime’s founder and managing director, Ralph Stewart and Chief Marketing Officer, Chelsea Devlin to find out everything you need to know about Lifetime Home.

Lifetime Home master classes will be held in-person in Christchurch, Wellington, and Auckland, and online.

To book your tickets CLICK HERE

rss
Latest Headlines

Fortnightly payments not necessarily cheaper

Homeowners who are paying their mortgages fortnightly in the belief that they will save thousands of dollars over the long term will be disappointed unless they have their loans set up correctly.

Tuesday, May 8th 2007, 6:35AM

by Maria Scott

It has become accepted wisdom among financial advisers and commentators to recommend fortnightly mortgage payments as a way to save interest. But mortgage broker Craig Seton of Mortgage Link says that lenders do not automatically set them up to save money for customers. He believes that many borrowers may not realise this.

“When paying fortnightly the repayments must be based on half the monthly equivalent. If paying weekly the payments must be calculated at a quarter of the monthly equivalent,” Seton explains.

“Most lenders do not calculate repayments for weekly or fortnightly options this way,” says Seton, who has worked in the banking industry. “Instead the payments are simply calculated to equate to the same annual repayments that paying monthly achieves.”

A mortgage of $250,000 at 8% over 30 years will cost $1834 per month and interest over the term of the loan will be $410,000. If however you pay $917 per fortnight (half of the monthly equivalent) you will repay your mortgage off 7 years earlier and save $113,000 in interest.

However if the lender calculates the repayments fortnightly based on paying the same amount per annum, as if you paid monthly, this would result in repayments of $846 per fortnight. Despite paying fortnightly you still pay your loan off over 30 years and only save $284.

A Consumers’ Institute guide to mortgages explains: “Broadly speaking a month is two fortnights. But there aren’t 24 fortnights a year; there are 26. Paying half your monthly repayment every fortnight means in effect that you will make an extra month’s repayment each year. “

Consumer calculates that the saving on a $150,000 loan over 20 years at 6.70% will be $21,000 if paid in this way.

Good Returns approached several lenders to ask for their methods of calculation. Two responded in detail, Westpac and ASB. Westpac pointed us to the explanation of the fortnightly system in its website guide to homeloans. “By paying half of your monthly payment on a fortnightly basis you end up making two extra payments a year. So, on a $100,000 home loan, you can cut nearly five years off your loan saving about $28,000 or 23% in interest.”

A spokesman agreed that this was one of two methods for calculating fortnightly payments but that both were explained to customers.

A spokesman for ASB claimed that it was misleading to state that there were two methods for calculating fortnightly payments because borrowers usually aligned their payments with salary frequency.

“ASB gives clients the option to pay either monthly or fortnightly, depending on the circumstances, and makes clients aware that any increase in their repayments reduces the term of their loan and therefore the overall interest paid.”

Good Returns would like to hear from borrowers about their experiences in setting up fortnightly payments. Do you know whether you have the money-saving system and did the bank explain the options? Email: feedback@goodreturns.co.nz
« Floating rates crack 10%Short term rates up, long term rates stable »

Special Offers

Commenting is closed

 

print

Printable version  

print

Email to a friend
Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.24 6.79 6.65
ANZ 8.64 7.84 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.24 6.79 6.65
ASB Bank 8.64 7.24 6.79 6.65
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.24 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.84 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 7.04 - -
Co-operative Bank - Owner Occ 8.40 7.24 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.74 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.69 6.45 6.19
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.75 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.39 7.25
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.25 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.25 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.75 7.35 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 ▼8.09 ▼7.59 ▼7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 ▼9.09 ▼8.59 ▼8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.84 7.45 7.25
SBS Bank Special - 7.24 6.85 6.65
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.74 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 8.04 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 7.24 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.89 7.49 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.89 6.65
Median 8.64 7.29 7.32 6.65

Last updated: 28 March 2024 9:42am

Previous News

MORE NEWS»

News Bites
Compare Mortgage Rates
Compare
From
To
For

To graph multiple lenders, hold down Ctrl key while clicking in list box

Also compare rates to OCR
Find a Mortgage Broker

Add your company

Use map
About Us  |  Advertise  |  Contact Us  |  Terms & Conditions  |  Privacy Policy  |  RSS Feeds  |  Letters  |  Archive  |  Toolbox  |  Disclaimer
 
Site by Web Developer and eyelovedesign.com