How to boost your loan repayments and save big time
Sometimes we think large extravagant extra payments need to be paid into our home loans to save and make even the smallest dent in the amount we owe. Not so. Small amounts paid in regularly over a period of time work wonders in reducing the overall amount of interest you pay to your bank. These small regular payments are the unsung heroes in the debt reduction battle. And yes, it is a battle.
Consider these little gems;
Example-You borrow $350,000 at 4.5% over 30 years, with principal & interest payments.
- If you make minimum loan repayments you pay back $638,423, including interest of $288,423.
- It takes 16½ years to reach a point where your loan repayment is split 50/50 principal and interest. Up to that point you pay more interest per month than principal.
- Some lenders will keep resetting (that is, lowering) your loan repayments when you get ahead to maintain contract term, costing you $$$$thousands in extra interest.
- Five years into your loan, you’ve only paid off 9% of the amount you borrowed.
- After fifteen years you’re half way through your loan term, but have paid off only a third of the loan.
- If you earn $80,000 per year, over 30 years more than one third of your total net income will disappear in loan repayments.
Put your small change to work;
If you add just $8.87/day to your loan repayments on this loan you save $76,334 interest and pay your loan off seven years earlier.
A person on $80,000/year gross, will earn $8.87 after tax in just 16 minutes of their working day. Compare that to the 100 minutes a day you spend working for the tax man you can get the point.
I Mean What Can You Get For $8.87/Day?
- 1 Cappuccino and a piece of toast at your favourite coffee shop…maybe!
- ⅓ packet cigarettes
- 6.0 litres of petrol
- 40% of a Family Pizza
- One loaf of bread and litre of milk
- …..not much really.
$8.87/day, 16 minutes of your time…the sacrifice is minimal and the rewards are HUGE. Now that you’ve decided to take ACTION, here’s how you make it happen.
5 Easy Ways to guarantee your extra repayments get from your bank account into your loan.
- Contact your bank and increase your loan repayments by the amount you have decided.
- Do an Internet Transfer from your bank account to your loan account on a regular basis.
- Take the cash to the nearest branch of your bank or to the Post Office if your Lender uses Giro Post.
- Mail a cheque to your Bank or Lender once a month.
- Set up an Automatic Direct Payment from your bank account to your loan account for the extra payment on a weekly/fortnightly/monthly basis.
BIG TIP # 1– AUTOMATIC is best so you don’t forget, or spend the money on something else.
BIG TIP # 2—Think of your extra payment as a significant contribution to your future well being, not a loss of income today.
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