As we all know, the quicker you repay your home loan, the more equity is built up, which can be used to fund the expansion of your investment property portfolio. It’s not as difficult as people may think.
BY KRISTY SHEPPARD
It’s about taking little bites and continuing to chew, all the while thinking about the end goal. Why let negativity cloud the satisfaction of getting closer to owning a property outright and having a good amount
of equity at your disposal?
Did you know that if a fairly average new home loan borrower – someone with a $281,400 home loan at 7.1 per cent over 30 years – contributed an extra $100 every month to their mortgage from day one they would save well over $70,000 in interest plus almost four and a half years off their loan term?
Doubling that contribution would save them almost $117,000 plus seven and a half years.
What if this borrower instead made extra repayments by paying fortnightly instead of monthly, almost by default making one extra repayment per year? They’d save almost $100,000 plus over six years off their term.
Consider what would happen if that person also threw in half of their $5000 bonus or deposited a lump sum they received from, say, the sale of a car or an inheritance?
What if they switched to a home loan with less features that had a 6.8 per cent interest rate and kept the repayments at the same level mentioned above? Perhaps this loan also didn’t charge $25 per redraw, which happened at least once a month, and so the borrower put those extra dollars back into their repayments?
Of course, these calculations makes all sorts of assumptions, such as the interest rate not increasing or decreasing over that time and the borrower’s income remaining reliable, but it highlights the impact small decisions can make to a home loan situation.
Sometimes baby steps have a huge impact when they accumulate over time. What moves can you be making to pay off your mortgage faster?
There are plenty of strategies out there, ready to be discovered. Do your research and ask your mortgage broker or lender about other ways you may be able to save time and money while repaying your home loan.
Kristy Sheppard heads up the Corporate Affairs department of Mortgage Choice, Australia’s largest independently-owned mortgage broker. She is the national publicly-listed company’s primary spokesperson and is responsible for its media, corporate, industry, government and investor communications. Visit www.mortgagechoice.com.au or call 13MORTGAGE.