January 15, 2013
It is no secret that New Year's resolutions to become a better budgeter and make the most of any savings will see more Australians master their mortgage sooner. But did you know that even small changes to your daily spending routine could amount to huge savings on your home loan?
According to the national mortgage broker, Mortgage Choice, successful budgeting is about making better financial choices and doesn't have to mean cutting out all of life's luxuries.
Mortgage Choice Head of Corporate Affairs, Belinda Williamson said, “If your life goal is to live mortgage-free sooner then the start of a new year is a great time to set financial resolutions. Take this time to review your budget, then look for ways to save money and make extra contributions to your home loan.”
“You have to be realistic about your goals and in order to make your budget work, it is important to allow for treats every now and again. Creating a savings plan doesn't mean you have to cut out all of your favourite things; it might just mean you have to scale them back from time to time and think twice before putting your hand in your wallet.”
Ms Williamson went on to say if borrowers actively cut back on, or ultimately live without, habitual expenses they might be surprised by the impact it could have on their home loan.
“Small financial changes can have a big impact on how much interest you pay over the life of your loan and the length of your loan term. Simply cutting back on take-away coffee or joining a rewards program, for example, can help put you months or even years closer to living mortgage-free,” Ms Williamson said.
Mortgage Choice offers the following top financial resolutions to help you become mortgage-free sooner:
Resolution 1. Make your own fancy lunch: Tick trimming your waistline and reducing your mortgage off your list of New Year's resolutions all at once! As appealing as a chicken caesar wrap sounds, why not put your master chef hat on and make it yourself, which could cut your lunch budget in half to say $25 per week. Saving the other $25 per week and contributing this to your monthly home loan* repayment could save you around $61,000 in total interest payable and cut over four years off the loan term.
Resolution 2. Change the way you drink your coffee: Say your daily caffeine hit costs you $4 per coffee, and you are buying one each weekday, equating to $80 per month. By cutting back on purchasing takeaway coffee to every second day for a whole year, and contributing the extra $40 per month to your home loan*, you could cut almost two years off the length of your loan term, and save over $27,430 in total interest payable over the life of the loan.
Resolution 3. Compare to find a better deal: You may be paying more than is necessary on your home loan, insurances, utility bills, etc. Comparing your options via your mortgage broker or websites including HelpMeChoose.com.au and Switchwise.com.au can help you find the best deal suited to your needs and may see you save money. For example, switching from a home loan* with an interest rate of 6.5% to a well suited product with a rate of 6.3% could save you almost $40 per month. Contributing this to your home loan, could save you around $25,515 in total interest payable and cut two years off your loan term.
Resolution 4. Become a VIP member: Whether this means you will get $5 off per ticket on your monthly trip to the movie cinema, receive sale prices at your favourite clothing stores, or earn a monthly $20 supermarket voucher for collecting points, every little bit helps. Say the annual savings added up to $500 per year, if this amount was added to your home loan* as a lump sum it could save you close to $2,990 in total interest, and cut the loan term by up to one month
Resolution 5. Bundle up your household expenses: There is no need to completely cut off your internet or pay-television to save money each month, when you could bundle them together, along with your home phone bill, mobile, etc, which could save you a small fortune. You may also consider lowering your data limit or package inclusions to help trim excess expenses. Any savings, big or small can then be contributed to your home loan to save even more over the long term.
*Calculation based on a $300,000 principal and interest loan at 6.5% with extra contributions made during the first year of a 30 year loan term.