Rising property values in Auckland, Wellington and Christchurch mean home buyers in those cities are increasingly likely to have paid more than $1 million in mortgage payments by the time they have paid off their home loan.
The high cost of housing in the main centres is forcing many home buyers to take out 30 year mortgages so that they can afford the repayments, but the downside of a longer term mortgage is that it significantly increases the total amount the borrower will pay over the term of the loan.
The point at which the total payments on a 30 year mortgage would hit $1 million (using ASB's current five fixed interest rate of 6.49%) is a loan of $441,351.
Assuming the interest rates did not change, a $441,351 mortgage for 30 years would require 780 fortnightly payments (comprising principal and interest) of $1282.06, which would total $1,000,006 by the time the loan was paid off.
While it is currently possible to obtain a mortgage at interest rates below 6.49%, current rates are very low by historical standards, and it's possible and perhaps even likely that rates would average above 6.49% over 30 years, so the total repayments on a $441,351 loan could end up exceeding $1 million by a significant margin.
If a property was purchased with a 20% deposit and $441,351 loan, it's purchase price would be $551,689.
That is below the average property value in the Auckland region and many parts of Wellington and Christchurch.
According to Quotable Value, which estimates the average value of all properties throughout the country, not just those which have sold recently (although average values are adjusted to take account of recent sales), the average residential property value in the country's main urban areas is $575,053, which is $23,364 above the million dollar total mortgage payment threshold using the formula outlined above.
Not surprisingly, mortgages requiring $1 million-plus in total payments are most likely in Auckland, where property prices are the highest in the country.
According to Quotable Value, the average dwelling value in the Auckland region is $761,858 and properties in most of its districts, including all of Rodney, the North Shore, Waitakere and Central Auckland, all have average housing values above $551,689.
Only those districts on Auckland's southern flank - Manukau Central, Manukau North West, Papakura and Franklin, still have average values below the $551,689 threshold.
In Wellington City, its western, eastern, central and southern districts all have average property values above $551,689, making $1 million in total mortgage payments more likely in those areas, while the northern suburbs of Wellington City and the Hutt Valley are still below the million dollar repayment threshold.
Christchurch is also a mixed bag, with average values in its central, northern and hill suburbs all above the million dollar repayment threshold but its eastern and south west suburbs still below it.
Of course mortgage payments aren't the only expense home owners face, there's also rates, insurance, repairs, maintenance and home improvements to be paid for, all of which add considerably to total property costs.
That does not mean that buying a home and paying it off over 30 years is necessarily a bad thing, because hopefully the costs involved will at least be matched and possibly exceeded by rising incomes and property values over time.
But it is still a sobering thought that so much of many people's future incomes will be tied up in paying for the home they live in, for such a long period of time.
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