Paying off your home loan faster may seem like a good idea in theory, but it’s hard to get excited about it. You took out your loan over 30 years and your chipping away at it, good on you! But I’m going to show you an example of why this simple little trick is really worth putting some thought into.
Current Mortgage: $400,000
Loan Term: 30 Yrs
Interest Rate: 4%
Repayment: $1,910 Monthly
Total Interest Payable: $287,365
Sally is happily paying off her mortgage, one bit at a time. She’ll be 60 years old when it’s paid off, then she can spend the following 10 years preparing for retirement, working part-time, heading off on a European vacation maybe?
Sally finds she is comfortably paying off her mortgage each month but decides to change her repayments to come out of her account weekly, instead of monthly, because 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?
Sally hasn’t realised, but she potentially just saved $66,000 over the life of her loan. She also just shaved 6 years and 1 month off her 30 year loan term, meaning she will be 54 years old when she pays off her mortgage, instead of 60 years old. Not only can Sally achieve financial freedom earlier in life, the benefit will compound as she plans for her retirement.
Try the MoneySmart Calculator for yourself, and see what small changes you can make now that could have a massive impact on your future. Future you will thank you!
For more information call Ellen on 0423688756 or get in touch here.