Your mortgage is likely to be your largest monthly expense and with interest rates being at their lowest since 1956, it makes sense to pay-off as much as you can now. Paying more off your mortgage per week, fortnightly or monthly can dramatically reduce the amount that you will pay over the term of your loan and it will shave years off your loan term.
Making Extra Repayments
Making extra repayments, when interest rates are lower, will allow you to save. For instance, let’s say you have a mortgage of $300,000 with an interest rate of 6 percent over a 30-year term. Your minimum monthly repayments are $1,798.65. However, you and your partner decide to pay an extra $50 a week off your mortgage. Your monthly repayments are now $1,998.65. This extra repayment will save you $91,173.43 over the term of your loan and will shave 6-years and 9-months off your loan term.
Increase Repayment Frequency
Most home loans require you to make a monthly repayment, but if you pay your mortgage weekly, this will shave hundreds off your mortgage over its term and will also reduce your loan term. Using the same example as we did previously ($300,000 loan, 6 percent interest, over 30-years), monthly repayments are $1,798.65 and the total amount of interest paid over the loan term is $347,514.57. However, by changing the payments to weekly you will
save yourself $443.37 over the term of the loan. It doesn’t sound like much, but if you add an extra $10 a week to your repayment you then save yourself $25,726.95 in interest and your loan term is reduced by 1-year and 10-months.
An Interest Rate Decrease
If your interest rate decreases by say .25 percent to 5.75 percent and you are still making the same monthly repayments of $1,798.65 (based on the previous example of $300,000 loan, 6 percent interest and a 30-year loan term) then you will save yourself approximately $27,200.00 in interest over the term of your loan, and you will shave approximately 2-years off your loan term.
Other Ways That You Can Save On Your Mortgage
If your current lender is offering you an interest rate that is much higher than the current market rate, then you may want to consider refinancing. Refinancing your loan at a cheaper rate can save you thousands, as we have already shown in our previous example. However before you refinance, be sure to check your existing home loan exit fees and lending terms and conditions. Why? Well, you want to be sure of fees and charges, before making a move, so that these don’t become large unexpected costs later on.
Want to know how much you can save on your mortgage? Then visit the eChoice extra payment calculator now.