We love helping our clients be mortgage-free quicker. You too can reach your goals and pay less in loan interest. Read how a revolving credit home loan may be right for you.

A key aspect of being able to slash mortgage debt quickly is  to make additional repayments  when those funds are available and revolving credit facilities allow this. This allows you to funnel surplus funds directly towards the mortgage, but still keeping them available to withdraw in an emergency situation – or for a holiday! People tend to get very focussed on securing the lowest possible interest rate – which is important (we all grudge paying the banks too much interest) – but you shouldn’t ignore the effect of improving your financial behaviour and how different loan account types may help get you there quicker. We can show most New Zealander’s how a 30-year mortgage can be repaid in 15-20 years. Our Cashflow Modelling Software, used by New Zealand Universities to teach financial planning degree students – makes this super easy too!

There is a way your surplus income can be put to work – without diminishing your current lifestyle, so you’re not penalised for making extra repayments, and still allow access to your ‘rainy day’ savings. If you think revolving credit is for you, then read on as you may be able to save hundreds of thousands in loan interest. 

Revolving Credit Explained

Revolving Credit is a type of floating loan where part of your mortgage is a transaction account that works very similarly to a overdraft – a large overdraft but at floating mortgage interest rates. We recommend having your income paid into the revolving credit account. Your day-to-day expenses, regular bills and the mortgage will be paid out of this account. Any surplus money in your transaction account at the end of the month, effectively lowers the mortgage balance and therefore you pay less interest. These are your savings. We analyse your expenses to determine the right size revolving credit facility – so you never pay too much interest, and set a savings and mortgage repayment goal for you to work towards.

Your savings can be withdrawn (or redrawn) up to a set limit,  the maximum amount that you are able to borrow. Don’t feel bad if you have to redraw these savings, as they are available if you want to start home renovations, buy a new car or that overdue holiday, the same as if you had a regular savings account and saved for these items – except available funds in a revolving credit account are reducing your mortgage interest. Many of the instances where we install a revolving credit account for clients are when they require access to funds for a future purchase, and don’t want the hassle of going to the bank again. 

5 Key Benefits

1. You only pay interest on what you have drawn down.
2. You can make additional repayments on a flexible schedule without fees.
3. You can redraw available funds if necessary.
4. Investors or business owners can have large account limits to use when required.
5. Fewer accounts to manage can be efficient and easy to keep track of for some customers.

Final Considerations

A revolving credit loan type is an interest only loan product. This means if you don’t make payments above the minimum, the debt will not reduce. So, having an effective mortgage strategy in place is a key part of taking the best advantage of this product, which is why we recommend seeking advice on this account type. It also requires good organisation and diligence, therefore if you are someone who is tempted to spend available funds in your account, then this might not be for you.

We set up a revolving credit with a limit that you think you could clear in a year – our software will help with this. Once installed, it’s a straight-forward, repeating process. The remaining debt is then fixed on a lower interest rate, usually for 12-months. At the end of the year available funds in your revolving credit account are transferred to your fixed loan. We then redraw the revolving credit back up (from your fixed loan), reducing the amount of debt in the fixed loan.

The below graph shows how recent clients can save $830,000 over the life of their loan and be mortgage free 14 years sooner based on a loan size of $1,500,000