RateCity
Loan Term
So you're in the market for a mortgage and are deciding on the best loan term, then you've come to the right place. That's because at RateCity we've not only compiled hundreds of mortgages to choose from, but we've also got stacks of information available to help you make the right choice.
When it comes to selecting a loan term, most lenders will offer you either 25 or 30 years to repay your mortgage in full. But this is often flexible - some borrowers will repay the loan sooner, while those who default or defer payments due to financial hardship may end up repaying the loan over a longer period than they initially signed up for.
25 years Vs 30 years
When you're considering borrowing money that will take close to three decades to repay, the extra five years may seem like a drop in the ocean.
The upside to choosing the longer loan term is that your monthly repayments will be less than if you choose a 25 year term. For instance, a $300,000 loan with an interest rate of 7.1 percent paid over 30 years may set you back around $2,000 each month. Cut the loan to 25 years and your repayments may increase by $140 each month, so the longer term may seem more affordable.
But when you break it down you'll realise that the sooner you can repay the loan the better, and the less it will ultimately cost in most cases. That's because by reducing the loan term you're minimising the amount of interest paid.
For instance, the interest paid on the 25 year home loan mentioned above is around $342,000. Pay the same loan out over 30 years and you'll pay $426,000 in interest. That's an extra $84,000 interest for the sake of saving $140 each month.
Shrink your loan further
For those of you who initially opted for a 25 year loan term, there are still big savings to be made on your home loan. By accelerating your repayments on the abovementioned loan by just 10 percent or $215 extra each month, you can save around $82,500 in the long run and repay a 25 year loan in just 19 years and 10 months!
Another great way to save money is to compare home loans online and switch to a cheaper loan, such as one with a lower interest rate, or better still - speak to your lender and ask for a rate discount!
The table below displays some of today's lowest variable rate home loans at RateCity.
When it comes to selecting a loan term, most lenders will offer you either 25 or 30 years to repay your mortgage in full. But this is often flexible - some borrowers will repay the loan sooner, while those who default or defer payments due to financial hardship may end up repaying the loan over a longer period than they initially signed up for.
25 years Vs 30 years
When you're considering borrowing money that will take close to three decades to repay, the extra five years may seem like a drop in the ocean.
The upside to choosing the longer loan term is that your monthly repayments will be less than if you choose a 25 year term. For instance, a $300,000 loan with an interest rate of 7.1 percent paid over 30 years may set you back around $2,000 each month. Cut the loan to 25 years and your repayments may increase by $140 each month, so the longer term may seem more affordable.
But when you break it down you'll realise that the sooner you can repay the loan the better, and the less it will ultimately cost in most cases. That's because by reducing the loan term you're minimising the amount of interest paid.
For instance, the interest paid on the 25 year home loan mentioned above is around $342,000. Pay the same loan out over 30 years and you'll pay $426,000 in interest. That's an extra $84,000 interest for the sake of saving $140 each month.
Shrink your loan further
For those of you who initially opted for a 25 year loan term, there are still big savings to be made on your home loan. By accelerating your repayments on the abovementioned loan by just 10 percent or $215 extra each month, you can save around $82,500 in the long run and repay a 25 year loan in just 19 years and 10 months!
Another great way to save money is to compare home loans online and switch to a cheaper loan, such as one with a lower interest rate, or better still - speak to your lender and ask for a rate discount!
The table below displays some of today's lowest variable rate home loans at RateCity.
