Home loan mortgage calculator: slash your mortgage today
Andy back today, geeking out with some numbers (yess!!).
As you may or may not know, Em and I took on a mortgage recently, so this is a debt topic we talk about quite a lot!
Did you know that the “mort” part of mortage means death? I think that’s a bit creepy. The reason it’s part of the word is that a mortgage is designed to be a looooong debt, and the sad reality is, that for some of us, we will be paying them into our old age, or until we die.
But it doesn’t have to be like that.
You may have read articles about how to pay a mortgage off faster, but do you truly understand the difference it can make if you can pay off a small amount extra? I’m going to use a home loan mortgage calculator to show you.
Please note: this is a basic example. It does not account for the terms and conditions your loan might have, where your payments may be restricted for a set amount of time.
We’re going to use a New Zealand mortgage calculator with NZ interest rates, but if you live in another country you will get the idea as the principle is universal. In our scenario I have come up a lovely couple, let’s call them Mike and Sue. They’re just nice, fun people. The sort you’d like to have a drink with. Mike and I would probably brew beer together if he were real…Let’s say they live in NZ, just like me and Em.
Mike and Sue are very lucky to both have jobs. Their combined income before tax is $110,000. Not too shabby. They are wanting to buy their first house (so they can get a kitten. Awww) and are saving like demons.
Based on their income, the bank will lend them up to $400,000.
But being the savvy pair they are, Mike and Sue decide they’ll borrow $300,000 (they’ve got $50,000 for their deposit too). This should get them a cute house in their chosen city of Dunedin, and by not stretching themselves to the max at the start, they’ll have more financial wriggle room to make extra payments.
If they go for the standard payment with no extras:
They’ll pay $874 per fortnight for 30 years. With an interest rate of 6-7%, they’ll pay a whopping $381,602 in interest alone: THAT IS MORE THAN THE COST OF THE HOUSE!
Now don’t panic. Interest rates are lower than that at the moment. But that’s another smart budgeting tip: you need to be able to afford interest rate rises, so don’t stretch too far at the start.
If they could afford to pay off just a little extra
What if Mike and Sue didn’t buy coffee at work, and could chip in an extra $5 per week each? That doesn’t sound like much does it. I think that sounds pretty do-able.
Check it out: they save a massive $29, 217. All for putting aside $5 per week each!! AND they knocked two years off their mortgage. Way to go, Mike and Sue!
See how a simple change can lead to a big saving?
And if one of them gets a pay rise……
Sue is unbelievably awesome at her job. One day, the boss calls her into the office and offers her an extra $5000 per year to take on some extra work. Being the keen worker she is, she jumps at the opportunity.
Since this is money that she and Mike were quite happily living without before, they decide to put Sue’s raise towards the mortgage. Her raise is roughly $96 per week, or $192 per fortnight. They decide they can afford their coffee, and each have their $5 back.
Wow. They have saved a massive $162k, and have almost halved the length of their mortgage. Making this relatively simple change is going to have Mike and Sue debt free a lot faster than if they just stuck to their original plan from the bank.
The moral of the story…
Every time your financial situation changes, or you think you may be able to pay a bit more off your mortgage, talk to your bank and renegotiate your terms. Whatever you do, don’t resign yourself to 30 years of debt, be smarter with your money and enjoy the benefits for years.
image by 401(k) 2012, CC 2.0, https://flic.kr/p/bta5Fr