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We wish we could say there was a magic formula or easy way to pay your loan off fast. But we can’t (well, we could but that would be a lie and we don’t roll that way!). It simply takes time and hard work. However, we can offer you some numbers that may put a smile on your dial. The following example scenarios illustrate how you can still save hundreds of thousands of dollars in interest if you make a sound financial plan and commit to it.
The working example
Let’s assume you have the following:
- loan amount: $500,000
- monthly repayments: $2,400pm
- 30 year loan term
- interest paid over life of loan: $360K
Now take a look at each scenario below to see how the numbers stack up.
Scenario 1 – making extra repayments
- loan amount: $500,000
- increase your monthly repayments to $3,000pm
- pay off loan in 20 years (not 30)
- interest paid over life of loan: $225K
- save around $135K in interest & pay off loan 10 years earlier
Scenario 2 – increase repayments according to CPI increase (3% PA repayment increase)
- loan amount: $500,000
- monthly repayments: $2,400pm
- year 1 – pay $2,470pm; year 2 – pay $2,550pm; year 3 pay $2,620pm etc
- pay off loan in under 20 years
- interest paid over life of the loan: around $250K
- save around $110K in interest & pay off loan 10 years earlier
Scenario 3 – combine scenario 1 & 2
- loan amount $500,000
- increase your monthly repayments to $3,000pm + add in CP increases each year
- pay off loan in 15 years
- interest paid over the life of the loan: around $185K
- save around $175K in interest & pay off loan 15 years earlier
What this all means for you
Scenarios 2 and 3 are effectively a nifty forced saving plan. By choosing either of these options, the principle amount you pay off results in huge savings to your hip pocket. You reduce the loan term by 10-15 years thereby saving all that interest. Imagine what you could do with all the extra cash?
These scenarios are just one of the great tools in our investment arsenal that we can help you employ to keep your repayments on track. Connect with us as we’d love to share them.