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| How paying your home loan weekly saves you $$$ |
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Most of us are aware that making their home loan payments weekly will save them time and interest, which means money! But do you know why this works? Let's take a look at a fairly common loan amount, say $250,000 at an average interest rate of 6.24% p/a and 30 year loan term. The regular monthly repayment is $1538 per month, paid in arrears.
If you are paid weekly it seems logical to divide the monthly payment by 4 (4 weeks in a month - right?) and get this taken out of your pay packet weekly. Good choice! (fortnightly, divide by 2 - it's pretty much the same result.)
Here's the result:
Simply paying a quarter of your monthly repayment each week in this scenario saves almost 6 years and $70,000 on your home mortgage. How does that work? Interest is calculated daily (but charged to the loan at the end of each month) so the sooner you get your money into the loan - and the more money you can pay - the more interest you save. There's another bigger reason - 4 weeks x 7 days in a week is only 28 days, but the average month has 31 days - a third of a week extra. So by dividing the monthly payment by 4 you are actually making a third of a weeks additional payment every month - by the end of the year this is almost a full months extra repayment.
What about paying just $50 extra a week on top of this? The benefit is huge!
That has to be the easiest and quickest way to save almost $129,000 off of your home loan.
Want to save even more money? Have you discussed the potential benefits of an offset account with us? An offset account may help by putting every dollar in your bank account to work for you every day. It basically saves interest as though you had paid it off the home loan while it sits in your account. Get paid monthly? It may not make sense for you to make your payments weekly or fortnightly but you can still benefit by increasing your repayments by the same amount.
Want to know more - ask us how or check out these reports : 250k_monthly_scenario.pdf 250k_weekly_scenario.pdf 250k_weekly50_scenario.pdf
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