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.
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