When it comes to a home mortgage loan, you can actually pay off the loan much more quickly and save a great deal of money by simply paying a little extra each month.
If you take out a 30 year loan for $250,000.00 with a 5.000% interest rate, your monthly payment (interest and principal only) will be $1,342.05. By the time the 30 year time period is complete, you will have paid $483,133.89 for your home.
But if you contribute just $50.00 more each month, you will pay only $461,835.60 toward your home. This is a saving of $21,298.29. In addition, you will get the loan paid off 2 Years 4 Months sooner than if you paid only your regular monthly payment.
Should I Refinance?
Deciding whether or not you should refinance your home mortgage depends on several factors such as whether you are looking to simply reduce your monthly payment or if you are hoping to save money in the long run.
To understand better, let us look at an example. If your original 30 year loan was for $250,000.00 with a 5.000% interest, and you have already paid on it for 60 months, it will reduce your monthly payment if you refinance for a new 30 year period but with a 4.500% interest rate.
For example, at 5.000% you would be paying $1,342.05 per month toward your home. When you refinance at the new rate, you will pay $1,163.21 instead, saving you total $10,730.84 in monthly payments.
Standard Loan or Interest Only?
When applying for a mortgage loan for your home, you can choose between a standard loan and an interest only loan. With an interest only loan, you will pay only on the interest when you make your monthly payments and you will eventually be called upon to pay the principal. It is a wise financial decision to compare the two types of loans before deciding which one is best for you.
If you wanted to borrow $250,000.00 for the purchase of your home, you might be offered a standard loan with a 5.000% interest rate or an interest only loan with a 4.750% interest rate, with both being 30 year loans. With an interest only loan, your monthly payment would be $989.58, while a standard loan would be $1,342.05. Under this plan, the total interest only cost would be $356,250.00, while the total standard loan cost would be $483,139.46.
Can I Compare Loans?
While shopping for a home mortgage loan, you will be presented with different loan options. Plugging this information into the loan comparison calculator will allow you to determine which one is the best option for you.
If your loan is for $250,000.00, you might be able to choose a 30 year loan with an interest rate of 5.000% and an application fees plus stamp duty of $1,200.00. Or, you might be offered a 30 year loan with an interest rate of 4.500% and application fees and stamp duty of $700.00. The first loan would come to $1,342.05 per month and the second loan would be $1,266.71.
When all is said in done, you will also pay less with the second loan. In fact, you will save $27,122.68 with the second loan because the first one would cost a total of $483,139.46 and the second would be $456,016.78.
Monthly vs Fortnightly
When you set up your mortgage payment repayment plan, you can choose between a standard repayment plan or a fortnightly repayment plan. With the standard plan, it would take you 30 years to repay the loan, while a fortnightly plan will take 25 years and 3 months. This will save you 4 years and 9 months of payments. But the savings do not end there.
If you took out a $250,000.00 loan with an interest rate of 5.000%, you can expect to pay $1,342.05 per month, while a fortnightly payment plan will call for a payment of $671.03 every other week. As a result, you will pay only $189,734.44 in interest with the fortnightly schedule rather than $233,139.46 with the standard payment plan. This means that you will save a total of $43,405.02 with the fortnightly plan.
Rent vs Buy
Is it financially better to buy a home or to rent? The answer to this question depends upon how much the home costs, how much you are paying for rent and how much you will have to pay each year in order to maintain your home.
If you were to pay $800.00 per month, for example, and the average rental payment increase was 4.000%, you would pay $51,996.70 in a 5 year period toward rent. If you purchased a home and borrowed $250,000.00 with a 5.000% interest rate, and you paid $900.00 every year toward its maintenance, you would pay $85,023.24 in a 5 year period toward mortgage payments.
When you consider your tax benefits and the appreciation of your home, however, you will actually save money by purchasing a home. If your home shows an annual appreciation of 5.000% and your selling cost is 7.000%, your house appreciation value will be $382,884.47. As a result, your total home purchase benefit will amount to $93,484.18.
How can I Pay off My Credit Card Sooner?
If you are in credit card debt, you might be interested in setting a goal to have that card paid off by a certain time. In order to reach that goal, however, you need to know how much money you have to send each month in order to have the card paid off by that date.
If you have a credit card balance of $10,000.00 on a card with a 17.500% APR, you might have a minimum payment set by the credit card of $250.00. At this rate, it will take you 5 years and 1 month to pay off the card. If you have a goal of paying off that card in 24 months, however, you will need to increase your payment amount to $496.83. Not only will this knock more than three years off your repayments, you will also save $3,326.12 by reducing the amount of interest you have to pay on the balance.