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There are a few key tactics to help you save money on your home loan and potentially pay it off early, and one that can have the biggest impact is also relatively simple.
Most home loans are discussed in terms of monthly repayments, however there is a benefit to making your home loan repayments more frequent, such as fortnightly or weekly to sync up with your pay cycle.
Take a look at the example below:
Say that Tom has the following home loan:
- Amount = $300,000.
- Interest rate = 4.24% p.a.
- Minimum monthly repayment = $2,000.
- Annual fees = $0.
| Repayment Frequency |
Repayment Amount |
Total Annual Repayments |
|
Fortnightly |
$1,000 ($2,000/2 fortnights a month) |
$26,000 ($1,000x26 fortnights)
|
|
Monthly |
$2,000 |
$24,000 ($2,000x12 Months) |
The Result? In this example:
- $15,814 is saved in interest over the life of the loan.
- The term of the loan decreases by 2 years.
This calculation is oversimplified - we estimate that there are two fortnights in a month, when in fact, there are slightly more days than this. The slight increase in repayments over the course of the year isn’t likely to have a negative impact on your everyday expenses, but it can make a big difference to your loan repayments over the long term.
Figures calculated based on a loan amount of $300,000, an interest rate of 4.24% p.a. and no annual fees. Figures are in today’s dollars, rely on assumptions and are estimates only. Calculations were made using the ASIC MoneySmart ‘Mortgage calculator’. Refer to the MoneySmart website for the full range of disclaimers and assumptions
