Planning on Paying your loan down quicker? What you need to know!
There are three key steps to reduce your debt. What are they and how do you do this for yourself?
Refinance. Quite often refinancing is a good starting point.
When doing this, we will refresh the rate and lender allowing you to save typically $2-3k in interest. It’s a fresh start and sometimes the kick that you will need to get this debt down quickly. Find out your rate, loan balance and cost to switch then call your broker. We normally save our clients an extra 2k off their interest per year. However you need to make the most of the savings and follow the next step.
Reducing the interest rate won’t mean a thing unless you reduce the timeframe.
How do you do this? Well Its simple. Try to come up with a budget and increase your repayments to a new amount.
So typically on a loan of $450,000 – your normal repayments based on 4% are = $2150 per month.
This as standard is over 30 years, this is where the bank wins and you will end up paying around $322,000 in interest over the full term plus the amount borrowed of $450,000. That’s a lot of money to pay!
What about increasing slightly on this amount to $2500 per month? – This equals a 23 year total loan term and $238,000 in interest!
How about $3000 this now is a 17 year mortgage and only an interest charge of around $175,000.
That’s 13 years reduction off your loan by increasing your repayments by $200 per week.
Feeling ambitious and want to pay more off? How about playing around with your mortgage on the link below.
Set a new repayment amount through your own internet banking or calling the bank directly and get them to increase this from your nominated account.
Now make sure you limit the times you refinance – Because as you top up your loan or switch products then most lenders will reset your repayments over 30 years again…
How do you know if you are getting ahead?
Its easy, it will be listed on your internet banking. You will be in advance on your loan.
You need to manage your repayments on what you can afford. If you pay off extra on your loan, you typically will have free redraw available and this is useful if you need some cash for a change in your financial circumstances. This saves going back to the lender and simply processing a redraw online. That way you keep the same loan, and you can keep your same increased repayments.
Why don’t more people do this?
For some reason, we are comfortable with doing the bare minimum. The lenders make a lot of money from setting up the minimum repayments, the extra money off your mortgage means that you will have more options in the future.
How old will you be when your mortgage is paid off?
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