Paying extra on your mortgage: does it actually work?
From Aaron’s YouTube: “But does it actually work?”
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Posted 14 December 2025
The short version
- Yes, it works. Extra repayments go straight onto the loan balance, and interest is charged on the balance, so every extra dollar stops earning the bank interest for the rest of the loan.
- The effect compounds: a smaller balance means less of each normal payment goes to interest, which shrinks the balance faster again.
- It does not have to be dramatic. A modest, regular extra amount can take years off a 30-year loan.
- The catch on fixed rates: most NZ banks cap how much extra you can pay before break fees apply. Structure matters as much as willpower.
Why such a boring trick works so well
Your mortgage interest is calculated on the balance you owe. In the early years of a 30-year loan, the balance is at its biggest, so most of each repayment is interest and only a sliver actually reduces the loan. That is exactly why extra payments early on punch so far above their weight: every extra dollar goes straight onto the balance, and from that day on the bank can never charge you interest on it again.
People love to point out that "pay more, owe less" is not exactly a secret. True. But the size of the effect surprises almost everyone: keep a modest extra payment going for the life of the loan and you can cut years off the term and a serious amount of interest off the total cost. The maths is boring. The result is not.
The fine print NZ borrowers need to know
On a floating rate you can generally pay extra whenever you like. On a fixed rate, which is where most NZ mortgages sit, banks typically only allow a limited amount of extra repayment each year before break costs can kick in. The limits differ by bank, and they change, so check yours before setting up a big extra payment.
This is where structure earns its keep: many people split the loan so part of it is floating or flexible enough to absorb extra payments, while the rest stays fixed at the sharper rate. You get the discipline of fixed with the freedom to attack the balance. And when a fixed term rolls off, keeping your repayments at the old level while the rate has dropped is an extra payment you never even feel.
Run your own numbers, not someone else’s
The years-saved number depends entirely on your balance, your rate and how much extra you can find. That is not a reason to shrug, it is a reason to check: the calculator on this site shows what a chosen extra amount does to your term and total interest, using your numbers.
And if your current loan structure makes extra payments awkward or expensive, that is a fixable problem. It is exactly the kind of thing Aaron sorts out when he looks at how a mortgage is put together.
This is general information, not personalised financial advice. For advice on your situation, talk to Aaron.
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