What Happens When You Pay $200 Extra a Month?
There are many benefits to paying an extra $200 a month towards your mortgage repayments. While it may seem counterintuitive on the surface, paying extra each month can save you thousands of dollars in interest payments by reducing your loan term. For example, if you have a $200,000 mortgage with a 30-year loan term and a fixed interest rate of 3.9% and you pay an extra $200 per month, you will not only save $43,000 in interest, but you will also reduce your loan term by eight years.
What Should I Know Before Making Extra Repayments?
While making extra repayments may sound attractive, it’s not always beneficial. For example, some lenders will charge you fees for making extra repayments and another fee if you repay your loan in full before the end of your term. So before you make extra repayments, you want to make sure you won’t be charged fees for doing so. In addition, you want any extra money you repay to go towards your principal loan and not your interest. Paying extra on your principal is what reduces your loan term and saves you money.
Another thing to be aware of is if you have a redraw facility or an offset account. A redraw facility can be helpful if you run into a challenging financial situation later on. Any extra repayments you make when you have a redraw facility can be accessed when you need them. An offset account can help reduce the amount you owe on your mortgage and save you money on interest.
If you’re curious about how making extra repayments every month can save you money, the experts at Mortgage House can help.