Increase your repayments to save money on your home loan
Do you want to save money on your home loan? When you take out a loan, banks are required to ensure you can still afford the repayments should interest rates increase. Currently when assessing your application, lenders are using a rate around 5.5%p.a. This is to ensure that should interest rates increase (which will definitely happen some time), that you can still afford your repayments at a higher interest rate.
An Example How You Can Save
Here is what this calculation would look like for someone with a $500,000 variable rate mortgage:
@ 2.85% p.a. the monthly repayment is $2,068 over 30 years.
@ 5.50% p.a. the monthly repayment is $2,839 over 30 years.
The additional cost of a monthly repayment based on 5.50% p.a. compared to 2.85% p.a. is $771.
If you were to add this $771 to your monthly repayments (IE pay $2,839 per month), the result would be amazing.
By making minimum monthly repayments over 30 years, you would pay $244,403 in interest.
By paying $2,839 per month, the loan would be repaid in approximately 19 years 2 months and pay $148,382 in interest.
A saving of almost 11 years and around $96,000 in interest.
If interest rates were to increase (which at some stage they will) then you would not have to alter your repayments until the interest rate hit 5.50%. The amount saved based on this calculation would alter if interest rates increased. However you would be way in front and have saved considerable interest. And if you ever needed these funds, then you are able to do a redraw and have access to them.
NOTE: This calculation is made on the assumption that the variable interest rate will stay at 2.85%p.a. Over the course of your loan, it will not. Whatever happens with interest rate movement in the future, making additional repayments will always be of benefit in reducing your overall interest. The message we’re conveying is, if you can afford to make repayments at the increased buffer rate, do it. Especially when rates are at such historically low levels. This assumption also has no monthly or annual fees (which a lot of loans do have)
The Home Loan Comparison Co. compares home loans from a much wider variety of banks than most people have time to consider, and we find the loan that suits your goals.
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