Conquering your debt is no easy feat and when you sign up for a home loan, it can feel like you will never get to the end of those home loan repayments. However, if you can tighten those purse strings and find a little extra to put into your repayments you could save a huge amount of money and cut years off your loan.
Making extra home loan repayments
Making extra repayments on your home loan may be far from top of mind when you’ve just taken on one of the biggest financial commitments in your lifetime. But adding just a few dollars extra per week can make a significant difference in the long run.
The natural reluctance to make extra repayments comes from wanting to spend more and live comfortably now, rather than later. We’re all too aware of the next car, iPhone, or holiday we want, while the savings we make from making extra repayments towards our home loan are hard to imagine.
Does this mean that Australians who do make regular extra repayments understand the fiscal benefits, and are disciplined enough to not spend the extra cash when they have it, aren’t as fun? In the end, they’ll be the ones enjoying more spending power, bigger meals, and earlier retirements down the track.
How much can you really save?
Through the wonders of compound interest, every extra dollar you send towards your home loan now will save you much more down the track (assuming that inflation is stable).
On a $300,000 mortgage at 7 percent over 25 years, you can expect monthly repayments of around $2200, and a total of $636,000 worth of principal and interest to repay over the quarter century.
However, by culling some luxury expenses here and there to pay an additional $200 a month – or just $6 per day – you could save more than $76,000 over the life of the loan and be mortgage-free almost 5 years sooner.
How do I make repayments?
Most financial institutions will have an efficient system for allowing you to choose how much your extra repayments will be. However, extra repayments are not a feature in every home loan, so make sure to discuss this during your application.
Extra repayments can also be regular (weekly, fortnightly, monthly), or come as a lump sum. The latter means that you simply pay once, and is often used when the borrower has some unexpected extra cash – for example a salary bonus.
If you have some extra cash consider putting it towards your home loan repayments. You will get your home loan debt paid off sooner and while your pockets will be lighter now, they should fill up with plenty of extra savings in the long run.
Use the RateCity home loan repayment calculator to see how much extra you could pay off your home loan and what this could save you in the long run.