Paying off your home loan faster is a great idea, but it’s hard to get excited about such a long-term goal.
If you took out your loan over 30 years and you’re chipping away at it, good on you! But I’m going to show you an example of why this simple little trick is worth trying.
Name: Shelly
Age: 30
Current Mortgage: $400,000
Loan Term: 30 Yrs
Interest Rate: 4%
Repayment: $1,910 Monthly
Total Interest Payable: $287,365
Shelly is happily paying off her mortgage, one bit at a time. She’ll be 60 years old when it’s paid off. She will then have only ten years to prepare for retirement.
Shelly is paying off her mortgage with monthly repayments. She changes her repayments to come out of her account weekly, instead of monthly. It’s easier to keep track of when she gets paid weekly. While she’s doing that, she’ll round it up to $500 per week, because what’s an extra $20 per week, right?
Shelly hasn’t realised, but she just saved $66,000 over the life of her loan. She also took 6 years and 1 month off her 30 year loan term. That means she will be 54 years old when she pays off her mortgage, instead of 60 years old. Now Shelly will achieve financial freedom earlier in life, and the benefit will compound as she plans for her retirement.
You can use a calculator like this one here to see how weekly repayments could change your life.
