If you could find just an extra $20 per week, you could significantly reduce the term of your loan and therefore the interest that you have to pay.
For some people, this is not an option but if you do feel that you could set aside some extra cash each week, then you may be amazed at the impact that it has.
For the purposes of this exercise, we have assumed that there you have a loan of $400,000 on an interest rate of 6%. We also assumed that there are no ongoing fees and that you are making principal and interest repayments from Day 1.
See the impact that extra repayments could have on your loan
| Monthly Repayment | Time to Pay Off Loan | Amount Saved in Repayments | Reduction in Term Loan |
|
|---|---|---|---|---|
| Normal Repayment | $2398.00 | 30 years | Nil | Nil |
| Extra $20 per month | $2418.00 | 23 years/3 months | $5,580.00 | 9 months |
| Extra $50 per month | $2448.00 | 28 years/4 months | $30,960.00 | 1 year/8 months |
| Extra $100 per month | $2498.00 | 26 years/11 months | $56,426.00 | 3 years/1 month |
| Extra $150 per month | $2548.00 | 25 years/8 months | $78,496.00 | 4 years/4 months |
It may not seem like much over a 30 year term but the reality is that increasing your repayments by$11.54 per week (the equivalent of $50.00 per month) will save you $19.84 per week over the course of the loan.
Sounds pretty good to me. If you would like to know more, then get in touch with me but just be warned that if you are on a fixed rate, then you need to watch just how much you are paying off in additional repayments as your lender may impose penalties if you pay back too much.
