What can a rate reduction do for you?

February 26, 2013
Ian Robinson

Its only a few weeks till the RBA again announce if the cash rate will be moving down or staying in situ. Will we get a reprieve from Mortgage payments with a cheaper monthly comittment? How does that sort of thing pan out for you?...A typical $250,000 mortgage at 30 years on say 7% as a guide would set you back about $1,663 as far as a monthly repayment goes. So you are set for a 30 year ride of payments, bank woes, economic worry and a financial juggling act spanning three decades.There are ways of reducing the pain.

If that 0.25% transpires next week then your payments would reduce to $1,621 a month, and your 30 year struggle continues. That $42 difference is GOLD for you. Say you kept it going and told your lender not to reduce your payments then that $42 could potentially save you nearly 2.4 years of angst and some $40,000 in repayments, and all for not making any changes next Tuesday.And that's only one rate reduction.

If you said, "you know what, I want to really save more than $100,000 on this home loan"!, then you simply only need to up that payment from where it is now by less than $15 a week, and you're done in 25 years - WOW!What would 5 years of $1663 a month buy you? That is effectively what you would have in your pocket each month. Its a great goal don't you think?Why would you want to have a house paid off in 30 years and then have a couple of thousand dollars a month to spend, when you can add $15 to your monthly mortgage now AND have nearly $2000 a month to spend 5 years earlier. No brainer, isn't it.And a parting thought.

If you could do an extra $50 a week on that sized mortgage we are up to 10 years off the loan, which is a saving of $200,000 in payments. You are then young enough to enjoy it.

So the plan is then - (are you with me on this?) call your bank TODAY and ask if you can please increase your loan repayment by between $15 and $50 a week. Then sit back and (not miss it) let the good times roll a lot earlier than expected. You'll be glad you did.

And, what's a way of saving in percentage even if the RBA don't come to the party? Refinance to a cheaper rate! I am pretty sure that I could save you that or even more to make those dreams come just that little bit closer for you.

Call me on 07 5474 4100.

Posted in: Interest rates

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