Anthony Healy: Get smart about home ownership

BNZ chief executive Anthony Healy shares some ideas about home loans and paying interest.

Home ownership, once an integral part of the Kiwi dream, is one of the hottest topics right now.

Limited stock, relatively low interest rates and a burgeoning population are among the factors driving the bullish market and record high prices, particularly in Auckland.

Marry this with what’s been one of this country’s most vigorous election campaigns with promises of home loan subsidies for first-time buyers, talk of capital gains tax and progressive home ownership programmes - and we’ve got some good material for discussion.

It’s true loan-to-value ratios and rising interest rates have slowed the residential market slightly, but this is only part of the mix. Traditionally New Zealanders have been poor savers and high borrowers.

The nation has had a long-standing enthusiasm for investing in housing rather than more productive sectors of the economy, and that has as much to do with habit as our culture, not to mention our taxation structure.

It’s a “she’ll be right” culture that makes us lack confidence when it comes to talking about money.

With this week being Money Week, there’s no better time to start a conversation about this. Run annually by the Commission for Financial Literacy and Retirement Income, the campaign deserves to be part of our financial warrant of fitness.

This year’s theme is “Get your money fighting fit”, and understanding home-loan interest is a part of this for around half a million New Zealand households.

I like the idea of challenging Kiwis to tone up their money skills, but the responsibility to share financial knowledge can’t be the commission’s alone.

The financial sector needs to front-foot hard conversations with customers about debt, productive assets - and everything in between.

One thing we’re not talking about enough is the millions spent in unnecessary home-loan interest every day - and at Bank of New Zealand, we want to do something about this.

There’s often a perception that once you get a home loan, you just let it tick over. Repayments become your biggest bill, and a call to your bank happens only if something goes wrong. But that’s not how it should be. Homeowners need to regularly reassess how they structure their mortgage. Does it work for their present situation? Could they increase repayments?

BNZ’s approach is to prioritise segments that will matter profoundly to New Zealand’s future - and our love of home ownership, coupled with the avoidable interest we pay, is one of these segments. Every four hours, New Zealanders pay $6 million in home-loan interest.

Many of us recognise the importance of long-term financial goals, but far fewer are taking critical steps to manage this.

Helping New Zealanders shred home-loan interest and pay off their home loans quicker benefits the wider economy by enabling reinvestment in other areas.

It also means Kiwis own their home sooner - which is ultimately what everyone wants.

When you look at the modelling, doing simple things like increasing your loan repayments in line with inflation every year can shred up to $156,000 of interest off a $300,000 home loan compared with a typical 30-year table loan, and it’ll be paid off 11 years quicker.

Even changing from monthly to fortnightly repayments will have a big impact on the interest you pay.

One of the best pieces of advice I got early on was to pay off more than my minimum repayments when possible. This advice helped me be better with money and to curb tendencies to spend.

Home loans don’t have to be complicated. We need to be having conversations about structuring home loans so customers avoid unnecessary home-loan interest. What’s most important is that as a nation we’re talking about it.

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