Normal options.

Although your mortgage term is often over a 25 or 30-year term at any point you are allowed to restructure your mortgage, either at your existing bank or by switching to a new bank. Here are two articles talking about restructuring.

  1. Mortgage Structure – rates are just the beginning
  2. Restructuring your mortgage without changing banks

Shorten the term

If you have decided to take a more cautious approach to your mortgage you can restructure your mortgage onto a shorter-term principal and interest loan, this will increase your current monthly commitments but will reduce your mortgage debt over time.

Voluntary repayment

If you have cash on hand and want to repay some or all of your mortgage that would reduce your ongoing cash commitments. You could also restructure your mortgage to include an offset facility allowing you to sell assets and park that money in a bank account which offsets your mortgage balance – this keeps your cash available whilst reducing debt payments.

Revolving Credit & Offset Accounts

What is revolving credit?

A revolving credit loan acts in a similar way to a large overdraft account. A revolving credit account is a current account that can be withdrawn without notice. This type of account caters to frequent deposits and withdrawals. You can deposit any income you receive (wages/salary, proceeds of sales, bonuses, etc.) and pay all your expenses from this account… Another form of revolving credit is an offset account – the key difference is instead of using one account, the bank looks at your cash savings across multiple accounts and offsets the balance of all of these against your mortgage. 

Using a revolving credit to save interest

Paying interest on only a portion of your mortgage can save you a significant amount in interest over the life of your loan. For an offset account although your overdraft maybe -$200,000 at the limit, you may have $53,000 savings sitting in another account – with an offset account you will only be charged interest on the -$147,000. (-$200,000 + $53,000 savings = -$147,000 mortgage).

You can also use revolving credit to manage your debt consolidation, by paying off high-interest credit cards with your revolving credit money.

Another benefit of using a revolving credit loan is that you can make as many lump sum payments as you like to this type of account. Meaning, any additional income you may get can be added onto your loan. You are therefore able to pay off your loan much faster or reduce the amount you pay in interest over a period until you withdraw that money for something else.  (redacted extract from an article on homes.co.nz written by us)

Debt consolidation

This doesn’t actually reduce your debt but it does have a big impact on cash flow, check out the covid-19 cashflow article here or an in-depth debt consolidation article here.