How to save thousands on your mortgage
By AMP Financial Planner Robert Inukihaangana
Borrowers have been hit hard by a third interest rate rise in as many months, with the average family’s mortgage increasing by as much as $100 to $150 a month.
Consecutive rate rises mean many households will have to find ways to cut costs and budget better, but by simply changing the way they pay their mortgage, people could save thousands.
On the average home loan of $320,000 at 6.5 per cent over 30 years, a household can expect to pay $2,023 a month.
The total repayments on this loan will be $727,858 and the interest charged will add up to $407,858.
However, if people change their repayments to weekly, on the exact same mortgage, they could save $94,720.
By paying weekly, people can pay more off their mortgage each year because 52 weekly mortgage repayments at $504 equals $26,208. On the other hand, if people pay monthly they would only be paying $2,023 per month for 12 months which equals $24,276.
By paying just an extra $1,932 each year, people can end up saving $94,720 over the term of the loan.
In addition, if people overpay their mortgage whenever they can afford to, they will not only be able to pay off their mortgage faster and with less interest, they will also build up a surplus that can be used in times of need.
So, how can people find the extra money needed to pay off their mortgage? By making a few simple lifestyle changes, most people would be surprised by what they can save.
Here are some savings tips to help get people started:
- Do a budget – Write down everything you spend and then you will be in a better position to start saving.
- Cut back on discretionary spending – Identify the difference between a ‘want’ and a ‘need’ and reduce spending on the items you want versus the items you need.
- Spoil yourself – Set yourself savings milestones and reward yourself with a ‘want’ when you achieve those goals.
- Set up a savings plan via direct debit – A great deal of people ‘budget by bank balance’ - that is they spend based on how rich their bank account looks. If you set up a savings plan which automatically debits your account every month you will naturally spend less.
- Don't mix business with pleasure – Separate your savings account from your everyday account.
- Reduce fees – If you have a banking setup which attracts high fees then change it. For example, if you don't use cheques then don't have a cheque book facility. Additionally if you use EFTPOS frequently it is best to have an account that facilitates this cost effectively and make sure you understand the limits.
- Consolidate credit cards – Careful use of credit cards can actually save people money. By using credit cards for everyday spending and paying off the balance each month, people can reduce the number of bank account transactions they make and reduce their fees.
- Transport – If travelling on public transport, buy a weekly instead of a daily ticket and avoid filling up your car when petrol prices are highest.
- Food – Bring your lunch from home instead of buying it at work and save around $50 a week.
- Movies – Not only do cinemas offer deals on Cheap Tuesday, but movie rental shops often have ‘dollar deals’ on new releases.
Most importantly, people should think about starting a savings plan. Saving gives people power – the power to be able to cope with unplanned expenses and most importantly the power to enjoy life.
Savings should be treated as a bill. People should pay themselves first, even if it’s just a very small amount each week.
Robert Inukihaangana is an Authorised Representative of AMP Financial Planning Pty Ltd, ABN 89 051 208 327, AFS Licence No. 232706.
Any advice given is general only and has not taken into account your objectives, financial situation or needs. Because of this, before acting on any advice, you should consult a financial planner to consider how appropriate the advice is to your objectives, financial situation and needs.