Buying your first place is a fantastic feeling! But what comes soon after, and isn’t so fantastic, is seeing a substantial mortgage sitting against your name. A mortgage that spans 30 years!
Believe it or not, there are ways to save on your mortgage and reduce the amount of interest you pay over its lifetime. Here are four simple tips to save on your home loan.
Pay more, now
Don’t think you can afford to put more on your mortgage? Actually, you probably can!
Lenders will generally calculate your ability to service your loan at a higher interest rate than what they actually offer you. Why? So that if interest rates go up they know that you can still afford your repayments.
So this means that you can actually afford to put a bit more on your loan than you currently are – you might just need to make a couple of lifestyle adjustments. Ditching your daily coffee or buying cheaper groceries could shave years off your mortgage, saving you big time when it comes to interest.
Pay more quickly
The longer you take to pay off your home, the more you are going to pay in interest because it’s calculated annually.
For example, if your loan amount is $500,000 at 5% interest for 30 years, your monthly repayment will be about $2,685 per month. This equates to a total repayment of around $966,279 over the life of the loan, which means you’re paying $466,279 in interest – which is nearly as much as the amount you borrowed in the first place!
BUT, if you could pay the loan pay the loan out over 15 years instead of 30, your monthly payments would be higher at $3,954 per month, but the total amount you would repay would be only $711,715. That’s a mammoth saving of $254,564.
Pay more frequently
Did you know that paying your home loan fortnightly instead of monthly you can make a pretty big impact to your loan balance?
If you divide your monthly payment in two and then pay fortnightly instead of monthly you end up paying 26 payments a year, which adds up to 13 monthly payments, rather than 12. This simple change can make thousands of dollars’ difference to your total loan repayment, cut years off your loan and it won’t have too much of an impact to your day-to-day finances.