Co-author: Ellie McLachlan
One of the main determining factors of the cost of your mortgage is the interest rate. Even though home loan interest rates are comparatively low at the moment, a mortgage can end up costing you a lot of money in repayments and fees over 25 or 30 years.
Average cost of a 25-year standard floating mortgage
The average cost of a 25-year floating mortgage on a loan of $200,000 at the current average standard floating interest rate on Canstar’s database of 5.78% (as of 8/01/2019), is $1,262 per month.
| Cost of a mortgage over 25 years at 5.78% | ||
|---|---|---|
| Loan size | Monthly repayment | Total cost |
| $200,000 | $1,262 | $378,552 |
| $300,000 | $1,893 | $567,829 |
| $400,000 | $2,524 | $757,105 |
| $500,000 | $3,155 | $946,381 |
| $600,000 | $3,786 | $1,135,657 |
| Source: www.canstar.co.nz. Based on a loan taken over 25 years excluding fees. The current interest rate is based on the average standard floating rate of 5.78% on Canstar’s home loan database as at 08/01/2019. | ||
The total costs calculated above are based on the assumption that interest rates will remain constant. With rates currently at historical lows, it is realistic to assume that interest rates will rise over the term of the loan, resulting in a higher total cost. As an example of how comparatively low interest rates compare to higher interest rates, below is the cost of a mortgage over 25 years at an interest rate of 7%.
| Cost of a mortgage over 25 years at 7% | ||
|---|---|---|
| Loan size | Monthly repayment | Total cost |
| $200,000 | $1,414 | $424,068 |
| $300,000 | $2,120 | $636,101 |
| $400,000 | $2,827 | $848,135 |
| $500,000 | $3,534 | $1,060,169 |
| $600,000 | $4,241 | $1,272,203 |
| Source: www.canstar.co.nz. Based on a loan taken over 25 years excluding fees. | ||
Average cost of a 30-year standard floating mortgage
Using a 30-year term at the current average standard floating interest rate on Canstar’s database of 5.78% (as of 08/01/2018), the average cost of a $200,000 loan is $1,171 per month.
| Cost of a mortgage over 30 years at 5.78% | ||
|---|---|---|
| Loan size | Monthly repayment | Total cost |
| $200,000 | $1,171 | $421,546 |
| $300,000 | $1,756 | $632,318 |
| $400,000 | $2,342 | $843,091 |
| $500,000 | $2,927 | $1,053,864 |
| $600,000 | $3,513 | $1,264,637 |
| Source: www.canstar.co.nz. Based on a loan taken over 30 years excluding fees. The current interest rate is based on the average standard floating rate of 5.78% on Canstar’s home loan database as at 08/01/2019. | ||
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As outlined below, the slightly lower monthly repayment on a 30-year loan term comes with a fairly significant total cost increase over the life of your mortgage:
| Cost of a 30-year mortgage compared to 25-year mortgage at 5.78% | ||
|---|---|---|
| Loan size | Difference in monthly repayment | Additional overall cost |
| $200,000 | -$91 | $42,994 |
| $300,000 | -$137 | $64,489 |
| $400,000 | -$182 | $85,986 |
| $500,000 | -$228 | $107,483 |
| $600,000 | -$273 | $128,980 |
| Source: www.canstar.co.nz. Based on the difference between a loan taken over 25 years and 30 years excluding fees. The current interest rate is based on the average standard variable rate of 5.78% on Canstar’s home loan database as at 08/01/2019. | ||
Your mortgage is quite possibly the largest debt you will ever have, with no taxation benefits attached. It makes sense to try and pay it off sooner rather than later, as well as to ensure that you are getting the best value for money possible.
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