Ok, it’s not that simple to turn $100 into $70k, however there is a way that will save you this amount or even more and shorten the term of your home loan!
The Simple Formula That Make Banks Billions…
The longer someone is a customer, the more money in interest a customer pays leading to greater profit for the Banks!
Total Cost of a loan:
Let’s look at a basic example of making the minimum P&I (principal and interest) repayments on a home loan over a 30 year term.
$300,000 loan amount and a constant 7% interest rate
At the end of 30 years, $418,527 in interest will have been paid, as well as $300,000 principal
$300,000 loan will cost $718,000 over 30 years!! wow…
See the table below for the confirmation…
This is the key to saving you money and reducing the term of the loan
An extra $100 per payment is made each month Almost $70,000 in interest is saved
Approximately 4 years & 2 months is reduced off the loan term!
Now imagine what would happen if someone makes more frequent additional repayments and more often?
Mortgages work like this:
Let’s say you owe $300,000 and you’re paying it off at a constant 6% interest, on a 30 year loan.
Your repayments will be around $1800 a month.
At 6% interest, the interest component of that repayment is approximately $1500/month.
This means that you are actually paying only about $300 per month off your mortgage.
At the beginning of the loan term, the majority of your loan payment is for interest, and as the term progresses, the interest component reduces as you finally are paying more principal…
See below for a simple table which illustrates this:
This little bit of insight probably feels like a punch in the guts.
Anyway, good news however, and that is you can save on interest by paying extra, you don’t need to find another $1800 bucks each month. Just an extra $100, $200 or even $50, and that’s a lot easier to do.
We all need a mortgage to get started, but the longer we have it the bigger the burden it becomes…every bit of spare cash can be used to reduce your interest and term of the loan…