Do you wonder what it must be like for people who don’t have to worry about their household budget? How much different would your life be if you didn’t have that mortgage payment coming out every fortnight?
What if there was a way to pay your loan off sooner so that you can start enjoying the finer things in life?
Well, there are six steps you can take today, which will make an enormous difference to the time that it takes to pay your loan off.
You could be holding that title in your hand sooner than you think.
In the past weeks, we looked at Step 1: choosing the best loan, and Step 2: changing your repayment frequency. These are both excellent ways to reduce both the length of your loan, and the total amount that you pay over the life of your mortgage.
Today, we will discuss how a few small changes to your budget can make a huge difference to the time it takes you to achieve your financial goals.
Step 3: Pay more to pay it off early
It might seem strange, but in the first few years of your home loan, you usually just pay off interest, barely touching the amount that you borrowed in the first place. This means that the interest on your loan won’t start to reduce for quite some time if you only make the minimum repayments.
If you can tweak your budget to pay just a little bit more each month, or each fortnight, you might be surprised at what a difference it can make.
For example, on a loan of $400k:
By paying an extra $50 each month, you could save around $36k on your total interest, and pay your loan off 1 year and 9 months sooner than expected.
Do you buy a takeaway coffee every day on the way to work? By saving $4 per day, and paying the savings off your loan now, you could save about $55k on your total interest, and pay your loan off about 2 years and 8 months early.
Try making a list of all the small things you spend money on daily or weekly, and see if there is anything you could happily do without. Just for fun, grab a calculator and multiply the item by 52 weeks, and then 25 to 30 years. You might be surprised what you find!
Want to pay your mortgage off sooner? Stay tuned for Step 4: the power of Offset Accounts and Redraw Facilities.