Photo: RNZ
You don't have to look far on social media to find someone promising to tell you "the things the banks don't want you to know" or a "secret strategy" to pay off your mortgage faster.
But one property investment company is warning people should not be tempted to part with their money for the courses, which can cost thousands of dollars.
In most cases, the courses are simply pitching a revolving credit strategy, which anyone can implement, at no cost. (An explanation of how to do it is at the bottom of this story.)
Opes Partners economist Ed McKnight said with demand for new properties down, many mortgage advisers were looking for new business by pitching services such as promising to help people "pay off their mortgages in seven to 10 years".
Opes Partners produces a podcast, which recently featured a woman who had paid $5000 for such a system, on the promise that it was not simply a revolving credit facility. But it turned out that it was.
She complained and got her money back.
McKnight said there was nothing wrong with promoting the idea of paying off as mortgage faster. But he said it was concerning that people were sometimes being told they could pay off their mortgages 10 or 15 years early, without making additional payments.
"You'd need significant cash put into a revolving credit for that to happen. They then charge around $5000 for their service and give very basic advice. The issue is that there is no way to pay off your mortgage faster without paying more money back to the bank.
"The structure of these companies is usually to advertise on Facebook and Instagram promoting a webinar. At the webinar talk about how the banks make lots of money from interest, tapping into anti-bank sentiment. Don't give any advice about how to pay off your mortgage faster. Just promote the idea of paying it off faster. Charge $5000 for a programme where you really learn the secrets.
"In one example I saw, there was a video from an adviser talking about this system 'which was not a revolving credit'. But then when you went through and looked at their website - it was a revolving credit."
Auckland Property Investors Association general manager Sarina Gibbon said it was a normal part of the cycle, where "service providers come out in full force to capitalise on the impending upswing".
"As conditions become more agreeable for buyers, you will see more and more activities starting from lenders - banks, non-banks and brokers - real estate agents and investment coaches. Following that will be insurers and property managers. We see this all the time. The thing about these courses is that the customers will always pay one way or another.
"And if courses are offered free of charge, then you've got to go in with your eyes wide open - more often than not, the provider is either looking to upsell you to a service or the quality of information is so generic that you end up paying with your time without learning much."
McKnight's colleague, Opes Partners managing partner Andrew Nicol, said he supported people getting good financial advice, and advisers charging for that.
"The reality there is no secret sauce for paying off mortgage faster, other than paying more money on to mortgage."
He said many courses got people to run through a budget and identify a "surplus" that could go into paying off the mortgage each month, which meant their modelling would show the loan was being repaid much faster.
Small increases in repayments can make a big difference to the term of a loan.
But Nicol said the challenge was finding that surplus to make it happen.
"Most people don't actually have much of a surplus. Especially at the moment. And people understate what they spend - they're desperate to get out of the mortgage interest and get the monkey off their back so they get into this thing and then realise there's no surplus.
"Unless you have a meaningful amount of surplus you won't get further ahead because revolving credits and offsets come with a higher interest rate… for the majority of people it doesn't work well. You get tricked into thinking there's a magic formula to paying off a mortgage, there isn't. People need to realise there's no silver bullet to getting debt-free, it required hard work and graft."
Nicol said other providers - such as Enable Me - were providing a more valuable service because they were holding people accountable and helping them to focus on their goals.
"They probably say their target client is someone who actually has a surplus and just needs a check in and accountability."
Enable Me said it was seeing strong demand for its courses, which it said were an accessible way to upskill and improve financial habits.
"However, financial education does not and should not replace financial advice, and in more complex situations like lending we provide tailored programmes to work alongside an adviser to assist and support clients through the process."
A spokesperson for the Financial Markets Authority said it had not observed an increase in this sort of activity.
"More generally, the FMA expects mortgage brokers/financial advisers to disclose all fees associated with providing advice. The code of professional conduct for financial advice services requires that financial advisers need to follow the standards of ethical behaviour, conduct, and client care. This includes the activities and business practices that surround and support the giving of financial advice with respect to acting with integrity."
How does it work?
In broad terms, people are usually given advice like this:
- Set up a revolving credit facility for some (or all) of your home loan. You can ask your bank or mortgage adviser to do this.
- This will often be a second account that acts like a large overdraft, maybe of $50,000 or $100,000. Each month or fortnight, have your pay go into this account.
- Pay for all your shopping and bills on your credit card.
- Leave your income sitting in the account for the month, offsetting the interest being charged on the money owing.
- At the end of the month, clear your credit card and use any surplus left over from your income to reduce the amount you have owing.
- Next month, repeat.
- The extra money from your income in the account during the month reduces your interest, and the extra payments you're making through you're your budget surplus also pay it off faster.
- When you've cleared that amount owing, you can take another part of your loan as a revolving credit facility and do the same again.
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