How Brian slashed his home loan interest by one-third – for free
Hi Nicole. Thanks for your encouragement in a recent article to haggle mortgage rates with our bank. I was able to get a 1.1 per cent discount from our existing loan with ME Bank. Being on aged pensions, with $60,000 left to pay off, it may improve our chances of home ownership before we die and in time to enjoy a few extra dollars. We were able to get an interest-rate reduction from 4.72 per cent to 3.62 per cent. I was offered slightly better variable rates from other lenders but transfer costs made it uneconomical. Are you able to calculate how much saving this means for us, given the new rate? Until this rate was offered, we were told the mortgage would take another 16 years to pay out. Brian
Well done you Brian! And what cheek to not give you this discount from the get-go… although ME Bank is certainly not alone in this "don’t-offer-unless-asked" pricing policy.
The “up-stumps-but-still-stump-up strategy” can save you thousands in mortgage interest over the life of the loan.Credit:
Now, I don’t know for how much your loan was originally, which dictated your minimum monthly repayment. But with $60,000 left, assuming you have not accelerated repayments and have so far held the loan for nine years (of a 25-year term), it may have been $80,000.
(Of course, your loan could have been for far more and, perhaps upon diminished income, you what is called re-amortised, or spread, the repayments on what was left of your loan over a fresh 25-year period. Or your circumstances may be different again, but these assumptions allow me to demonstrate a powerful point.)
That would mean you previously had a minimum monthly repayment of $455, which would also mean you were on track to pay interest of $24,779 (and yes, had a remaining 16 years).
Now, however, your interest bill has overnight fallen to $19,584 over that time.
You have cleverly positioned yourself to apply my "up-stumps-but-still-stump-up strategy," without even having to switch lenders.
I’ve created a free app that automatically calculates your savings from just this, called My Mortgage Freedom Date.
You simply keep your loan repayment at its original level – what you have long been used to repaying – to slash both your interest and the time left on your loan.
You would save an extra $3000 – down to a total of only $16,626 in interest – and get out of debt nearly two years early. For free.
Other readers, with the flexibility to move and very possibly larger loans, can input into the app the best value rates in the overall market right now, below 3 per cent, to see their own savings soar.
Nicole Pedersen-McKinnon is the author of How to get mortgage-free like me, available at nicolessmartmoney.com. Send her a question at [email protected], or follow her on Facebook, Twitter or Instagram.
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