When it comes to your home loan repayments, there are several key variables which will impact the cost of your mortgage. It’s important to understand all of these before signing onto your home loan, as employing just one of the following factors can save you a meaningful amount over the life of your home loan. These include:
Of course, the interest rate you’re offered on your home loan will play a big role in shaping your $500,000 home loan repayment. Even minor differences in the mortgage rate can have a significant impact on what you end up paying overall. For example, a $500,000 home loan with monthly repayments over 30 years would cost $2,108.02 for each instalment (and $258,887 overall) at a 3% p.a. interest rate. Cutting that rate down to 2% p.a. instead would not only reduce monthly repayments to $1,848.10, but also total interest to $165,315. In many ways, interest holds the key to your mortgage savings.
The longer your loan term, the more interest and fees you’ll pay. For this reason, any opportunity you can take to shorten your term, whether that be via additional repayments or a shorter initial term, should be seized upon. For instance, a $500,000 mortgage with monthly repayments at 2.5% p.a. over 30 years would produce instalments of $1,975.60 and cost $211,218 in interest overall. However, while a 25-year term would increase repayments to $2,243.08, the interest you’d pay over the life of the loan would fall dramatically to $172,925, representing a total saving of almost $40,000.
In the same way as interest, mortgage fees can shape a significant portion of the cost of your $500,000 loan repayments. This is represented in part by a loan’s comparison rate, which serves as a more representative reflection of the cost of a mortgage by combining rates and fees into one percentage figure. Even reducing a monthly fee from $15 to $5 will add up to an incredible saving of $3,600 over the life of the loan. You should familiarise yourself with home loan fees by comparing mortgage offers with Savvy, enabling you to make a more confident choice on which offer is most affordable.
While you may not think it, how often you make repayments will actually impact not only what you pay per instalment but also your overall loan cost. Because fortnightly repayments represent the equivalent of 13 months’ worth each year (26 fortnights compared to 12 months), you’ll actually save a great deal overall by selecting this schedule. A $500,000 loan with monthly repayments over 30 years at 2.75% p.a. would cost $2,041.21 and $234,834 in interest, but a fortnightly instalment would set you back $1,020.60 every two weeks and only $204,933 in overall interest, a saving of almost $30,000.
Whether you’ve chosen to go with a variable home loan interest rate or a fixed rate will impact the consistency of cost for your $500,000 home loan. Variable interest rates are left open to fluctuation, meaning the amount you actually have to repay may vary from month to month. While this places you in an ideal position to capitalise on rate drops, it also leaves you vulnerable to increases in your lender’s interest. Fixed rates give you the luxury of certainty when it comes to how much you’ll be setting aside each month, but also may end up costing more due to locking you out of rate decreases.