Let’s consider an example to illustrate how paying extra off your mortgage each month can save years off your home loan:
Assume you have a 30-year fixed-rate mortgage with a principal amount of $250,000 and an interest rate of 4%. Your monthly mortgage payment (principal and interest) would be approximately $1,193.
Now, let’s say you decide to pay an extra $200 each month towards your mortgage. By making this additional payment consistently, you can significantly reduce the overall repayment period of your loan.
Here’s the impact of the extra $200 monthly payment:
- Payoff Time: By paying an extra $200 each month, you could potentially pay off your mortgage years ahead of schedule. In this example, it could shave off around 5 to 7 years from the original 30-year term, depending on the exact numbers and interest calculations.
- Interest Savings: By paying down your mortgage faster, you also save on interest payments. The total interest paid over the life of the loan would be significantly reduced. The exact amount of interest saved will vary based on your specific loan terms and the interest rate.
It’s important to note that the above example is for illustrative purposes only, and actual savings will depend on various factors, including the specific terms of your loan, interest rates, and the timing of the extra payments.
Before making extra payments towards your mortgage, it’s advisable to check with your lender to ensure there are no prepayment penalties and to confirm how the additional payments will be applied. When in doubt contact us here at Mynt Financial and we can provide you with personalised advice based on your unique circumstances.
