Here’s how you can pay 40% less interest over the life of your mortgage and pay it off 10 years faster.
The thing to remember is that interest compounds. When you save money, this means you earn interest on the interest and so on. When you’re repaying a mortgage this works in reverse – the less you owe, the less interest you pay (and the less you owe).
Sound complicated? What it boils down to is that small increases in your regular repayments will have a massive impact on your interest costs in the long run.
Regularly paying a bit extra makes a massive difference
Having the right structure and rates pays big dividends in the long run.
- Regularly paying a bit extra makes a massive difference
- Having the right structure and rates pays big dividends in the long-run
In the example below the borrower will save $141,000 in interest on their mortgage and reduce the loan term by 10 years simply by increasing their repayments by $450 per month.
|Payment amount (monthly)||$2,209||$2,659|
|Mortgage term (years)||30.0||20.5|
|Reduction in interest||36%|
Things you can do
Negotiate better rates with your bank
A 0.50% rate decrease will reduce your term by 3.5 years and save $100,000 in interest.
Keep your repayments the same when rates drop
Increase your repayments whenever you increase your income (a 3% increase in your repayment amount each year will reduce the loan term by 12 years).