Borrowers can significantly reduce the total interest they pay and shave years off their loan terms through maintaining their current repayments even as interest rates decrease, according to modelling from AMP Bank.
The bank’s calculations showed that by contributing just $50 extra per week towards a home loan, a customer with a mortgage of $400,000 could save $46,992 in interest and pay the loan off four years early.
“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,” said AMP CEO Sally Bruce
“Many people are unaware of the powerful impact extra repayments can make to their mortgage. 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.”
The AMP modelling showed putting an additional $50 per week towards a mortgage could:
- For a $300,000 loan, save $44,150 in interest and pay it off five years and one month earlier
- For a $400,000 loan, save $46,992 in interest and pay it off four years earlier
- For a $500,000 loan, save $48,887 in interest and pay it off three years and four months earlier
- For a $1,000,000 loan, save $53,203 in interest and pay it off one year and nine months earlier
According to Bruce, AMP is committed to financial education, and guiding customers towards "practical ways to pay off their loans sooner" is a natural extension of working to help them achieve their goals.