RateCity investigates the huge savings smokers can make by quitting and paying down their mortgage.
May 27, 2010
The latest interest rate rises have put pressure on most households with a mortgage. And if you’re a smoker, the federal government’s new 25 percent tax hike on packs of cigarettes will be sure to put an extra sting on your finances.
The average 30 pack of cigarettes will increase by $2.16 to about $11. That would cost $334 per month or over $4000 each year for the average one pack per day smoker.
New research by RateCity found if a smoker who quit and added this $334 each month to their repayments for a typical $300,000 home loan at the current average standard variable rate of 6.99 percent, they could potentially save more than $100,000 in interest over the loan term as well as decrease a 25-year term to under 19 years.
Now is the time to consider quitting the habit for good and make use of the savings, according to RateCity’s CEO Damian Smith.
“Many households will be feeling the pinch of rising interest rates as we’ve seen mortgage repayments increase by about $340 per month for the typical $300,000 loan since September 2009,” Smith said.
“This is why it’s a great time to reassess your habits by quitting smoking and use that money to pay down your mortgage. We’re not in the business of providing health advice – but for most smokers with mortgages, kicking the habit and redirecting their savings into their mortgage will likely have health and wealth benefits.”
Even if you don’t have a mortgage, Smith say smokers who quit can still make great use of their extra cash by taking advantage of high interest savings accounts on offer.
“If you don’t have a mortgage and are looking to quit smoking, there are incredible deals at the moment with online savings accounts, which are fetching up to 6.25 percent by ING Direct on RateCity [as at May 20, 2010], Smith said.
“Depositing $308 per month into one of these accounts could earn you $108 after one year or about $3148 in five years’ time,” he said.
“The number-one reason for quitting smoking obviously should be health-related. But the financial benefits of redirecting savings from an increasingly expensive habit can’t be ignored – and smokers need to assume that cigarette prices are only going one way – up.”