A Mortgage for a home for most people will be the largest debt they will incur in a lifetime. This also means that it will take the longest time to pay off and will incur the most amount of interest.
Banks and lenders will generally structure a home loan over 25 or 30 years. This makes it affordable to pay off for the “average’ person but it comes at a cost….. and that is a “lot of interest” paid to the financial institution over a person’s lifetime.
As an example, a home loan of say $300,000 on a 30 year term at a 6.45% interest.
Repayments will be approximately $1886 per month and the total Interest paid will be $379,086 during the lifetime of the loan.
So the total paid for a $300,000 home loan will be a whopping $679,086 which is basically buying 2 homes!
The only consolation is that the home will rise in value over time to cover that.
The amount of interest paid can be reduced by a few methods:
1. Get a loan with an offset account (attached to the home loan) – which means, keeping any extra funds in the offset account to reduce interest charges
2. Make repayments weekly or fortnightly as opposed to monthly (remember interested is calculated daily so it can be a big saving over time)
3. Make extra repayments when possible e.g. tax returns, bonuses or the best method is regular extra repayments
As an example: Jim and Melissa have a home loan for $300,000. Their repayments are $1995 per month. If they pay $2195 per month (an additional $50 per week) they will save over $116,000 in interest over the term of the loan and 7 years in repayments! If the interest rates do move up, the additional $200 per month will save them even more!
If you do need further assistance or help with your current Debt Situation, give Debt Negotiators a call on 1300 351 008 and we can help you to consolidate and pay off these debts with one easy payment or point you in the right direction.