Modelling from AMP Bank shows an average home loan customer with a mortgage of $400,000 could save $46,992 in interest and pay their home loan off four years faster by contributing an extra $50 per week to their home loan.
The figures reveal how people making extra repayments to their mortgages – or keeping their repayments at the same level, even as interest rates decrease – can significantly reduce their total interest bill and shave years off their loan terms.
AMP Bank CEO Sally Bruce said the modelling revealed how making extra repayments could save Australians thousands of dollars in interest over time.
“Many people are unaware of the powerful impact extra repayments can make to their mortgage. With recent cuts to variable mortgage rates, home loan customers have a choice to make around whether to pocket the rate cut or save the extra money, or a portion of it, back into their home loan,” Ms Bruce said.
“It may be hard to believe but contributing just a small additional repayment of $20 or $50 dollars every week can result in big savings in interest over time.”
Impact of saving an extra $50 per week into a mortgage*
- $300,000 loan - Save $44,150 in interest and pay off the home loan five years and one month earlier.
- $400,000 loan - Save $46,992 in interest and pay off the home loan four years earlier.
- $500,000 loan - Save $48,887 in interest and pay off the home loan three years and four months earlier.
- $1,000,000 - Save $53,203 in interest and pay off the home loan one year and nine months earlier.
Ms Bruce said: “We know no two home loan customers are the same. We encourage anyone with a mortgage to consider their personal financial circumstances before deciding whether making extra repayments is right for them.
“AMP Bank also has a strong commitment to financial education and it’s an important part of our strategy. Arming our customers with practical ways to pay off their loans sooner is one of the ways we’re helping them to understand their finances and how they can reach their goals sooner.”
*Calculation assumes the customer is five years into a 30-year home loan on an average owner-occupier discounted variable rate of 4.68% as per RBA Lending Rates, May 2019. Calculation does not account for future variations in interest rates or include fees. The information should be used as a guide only. Individuals should consider their personal circumstances and consult professional financial advice where appropriate.