Take Advantage of the Credit Crunch To Pay Down Your Mortgage
Posted July 28th, 2009 and last modified November 22nd, 2011If you want to take advantage of the credit crunch, then now is the best time to consider your mortgage repayments.
Kiwi Model Rachel Hunter said it best when she said: “It won’t happen overnight but it will happen.” (Pun intended.) She was of course referring to the high possibility of rate rises. Right now, we are enjoying the lowest interest rates in a long time and if you want to save some serious cash, you owe it to yourself to look at the figures below.
Mortgage repayments revisited:
If you look at the following figures you’ll soon realise how much money you can save if you take advantage of the current credit crunch rates.
Assuming you had to pay back a $220,000 home loan on an 8 per cent interest rate, you would end up paying $300,000 in interest alone over the span of 25-years. That’s insane and more than your actual loan.
Conversely, take the same loan and time frame on a 5 per cent rate (as of right now,) and your interest rate payment over the course of the loan would only be $166,000. A considerable saving!
It gets better than that! Credit crunch to the rescuer.
Thanks to the four percentage points by which our interest rates have fallen since last year, many Australian families can enjoy a surplus of $600/month. Assuming again that your employment situation is relatively safe, you could take that total amount and pump it into your loan repayments. Doing this will save you a further $69,000 in loan interest over the span of your loan.
This would reduce the total interest paid on your loan to below $100,000, a whopping 30 per cent savings! Just imagine what else you could buy with that extra cash!
However, before you get too excited you need to realise these calculations are based on the current rate which will eventually hike up again. Therefore it is essential to take as much advantage as possible and use the credit crunch in your favour by increasing your mortgage repayments now. Every dollar you can spare will help save money in the long run.
Smart home owners have long realised that an offset account can help them in two ways. First they use it like a regular savings account with access to funds as normal, but the money within the account is also offset against the debt owed. For example, if your loan is $120,000 and you have $40,000 savings in your offset account you will only pay interest on $80,000.
Plus, these accounts often come with a redraw option, meaning that if you ever find yourself in a financial emergency you can actually redraw the excess money paid into your loan. Coupled with a rewards credit card this combination is very powerful. Even if you only ever have $10,000 in your offset account for the span of your loan at 8 per cent this would save you a further $55,000.
Author and financial correspondent Nicole Pederson-McKinnon has just released a new book called: Halve Your Debt and Double Your Freedom without the Mumbo Jumbo which we highly recommend you have a read of to get some great financial advice.
Source: Smh.com.au
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