How To Easily Knock Six Years Off Your Home Loan
There is no real secret about repaying your home loan faster. Simply pay more than your minimum monthly requirement and you will naturally shorten the term of the loan.
Although this sounds like a simple proposition it can take a little planning, but with a proper budget most people are surprised at how much fat they can find in their income which they can then use to repay their home loans quicker than they had originally thought.
First of all, let’s look at what impact just a small extra repayment can really make. Take an average couple who have a variable rate home loan of $350,000 over a 30 year term at 6.5%. The minimum monthly repayment they will be required to make is $2212.24. If they could find enough in their budget to pay an extra $50 per week this would equate to an extra $216.67 per month. Simply by doing this, the term of the loan would decrease by just over 6 1/2 years!
So, in real figures if they reduce their loan term by 6 1/2 years, they would be saving 78 monthly repayments which mean a total savings of $172,554.72. Not bad for an extra $50 per week is it?
Now that you have seen how a small increase in repayments can have a massive effect on the total amount of money you can save it is easier to make the decision to actually do something about it.
Here is another way to think about it. If you were to save $50 a week for 30 years of your life, at the end of the day you will have saved $78,000. You may have earned a little interest on this, but you would also have paid extra tax on it, which means that at the end of 30 years the original $78,000 may have become maybe $85,000. On
the other hand if you attempt to save $172,554.72, you will have to put away $110.61 every week.
This example simply shows the power of time and the effect of interest rates. Making an extra $50 a week contribution to your home loan repayment is the same as
saving $110.61 a week. There is not a savings plan or investment that comes anywhere close to this return.
This is what makes doing a budget really worthwhile. It is such a simple process and can have a massive impact on your life you should treat it as compulsory.
To start with you might want to consider making your home loan repayments fortnightly instead of monthly. If you make a repayment of half of your monthly requirement each fortnight you will shave six years off your loan!
None of these measures are difficult to implement and whichever way you look at it, you can save tens of thousands of dollars by making a simple adjustment to your home loan repayment. It is probably one of the few chances in life you have to make not just an impact on your home loan on your lifestyle too.
