Having a mortgage may seem like a massive long-term financial commitment. But with a few simple tips, you could shave tens of thousands of dollars off the balance and be mortgage-free years sooner.
It’s easy to fall into the trap of paying just the minimum monthly repayment on your home loan, but by ramping up repayments and switching your repayment frequency from monthly to weekly, you are likely to be far better off over the life of the loan.
Take for instance a $400,000 home loan over 25 years and paying the average of the big four bank’s standard variable interest rate at around 7.30 percent. At this rate you’ll be forking out about $2900 per month. Bump your repayments up by just $100 per month and you’ll save a whopping $48,634 over the life of the loan! Add $150 per month in extra repayments and you’ll be mortgage-free 3 years sooner.
Now consider switching to one of the cheapest interest rates on the market – at around 6.14 percent – you’ll cut your home loan repayments by around $290 per month, saving you almost $3500 per year. You’d be wise to maintain repayments at your former rate too – by paying the additional $290 per month on the new loan you could potentially save close to $90,000 over the life of the loan and repay the balance 5 years sooner! To see how much you could save, use a mortgage calculator today.
Here are some tips on how to afford to make extra repayments:
- Cut back on your weekly spending, it’s the small things that count. Make your lunches rather than buying every day, cook dinner at home rather than eat out
- Budget, budget, budget and stick to it. This may be difficult initially but once you get the hang of it you will wonder what you used to spend all your money on before.
- Look at your needs versus wants. Before you purchase something, think to yourself ‘do I really need this’, if the answer is no then put it down and walk away.
- Look at other ways you can cut back and implement those changes immediately.