Mortgage interest rates in Australia are currently at record lows. But even though they are, do you have any idea how much interest youâ€™ll pay over the life of the average home loan if you only make your minimum monthly repayments? If you donâ€™t, prepare to be shocked.
According to the most recent figure from the Australian Bureau of Statistics, the average Australian home loan is $388,000. If you take out a mortgage of that size over a standard 30-year term at an interest rate of 6%, youâ€™ll end up paying a whopping $449,452 just in interest alone!
In other words, your total principal and interest payments will be $837,452! Youâ€™ll end up paying more in interest than what you borrowed.
And that calculation doesnâ€™t consider any additional loan fees and charges that you might need to pay. So you can add them on as well.
It gets worse too if interest rise (as they inevitably will over the life of your loan). Hereâ€™s some more sobering numbers when that happens:
- If interest rates rise to 7%, youâ€™ll pay a total of $929,295 (including an interest bill of $541,295).
- If interest rates rise to 8%, youâ€™ll pay a total of $1,024,922 (including an interest bill of $636,922).
- If interest rates rise to 9%, youâ€™ll pay a total of $1,123,897 (including an interest bill of $735,897).
So what can you do about it?
There are three main ways you can pay less interest:
To do that, you need to either somehow come up with a higher deposit, or you need to buy a cheaper property.
Secure a lower interest rate.
The calculations above show how much difference a lower interest rate
makes to the total amount of interest you pay. So make sure you get the best deal you can. If you already have an existing mortgage at a higher rate, consider refinancing
Increase your repayments.
There are many ways you can do this, including:
- increasing the frequency of your repayments from monthly to fortnightly. If you do this, just halve your monthly repayment to get your fortnightly figure. Doing that will help you to make an extra monthâ€™s work of repayments every year, because there are 26 fortnights in a year and only 12 months.
- make additional lump sum payments whenever you can. For example, if you get a bonus or a tax refund. Any additional payments you make will come straight off the amount you owe, reducing your interest bill.
There are plenty of other strategies you can use as well.
How we can help
At Fast Repay Home Loan, we help our clients to implement strategies
so they can become debt-free and own their own homes as soon as possible. Whether youâ€™re looking to take out a home loan
or to refinance
, weâ€™ll take the time to understand your needs and goals so we can provide you with the best possible advice.
CallÂ 1300 707 955
Â or emailÂ firstname.lastname@example.org/backup
Â to find out how we can help you, and to secure your free consultation with a finance expert.