Modelling from AMP Bank has revealed that an owner-occupier with a 30-year, $400,000 mortgage could save $46,992 in interest and pay off the loan four years faster if they contributed an extra $50 per week. This is assuming they are paying a discounted variable rate of 4.68 per cent p.a.
The chief executive of AMP Bank, Sally Bruce, said: “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.
“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.”
According to AMP modelling, an extra $50 contribution per week on a 30-year, $300,000 home loan could result in mortgagors paying $44,150 less in interest, and cut five years and one month off a loan term.
An extra $20 per week could result in total interest savings of $20,671 and a loan term that is two years and four months shorter, and an additional $100 per week could mean $71,236 in interest savings and eight years and five months off the 30-year loan term.
For a 30-year, $500,000 home loan, an extra $50 per week could save borrowers $48,887 in interest and shorten their loan term by three years and four months. These figures drop to $21,281 and one year and nine months when paying an additional $20 per week, while rising to $78,828 and six years and 11 months when contributing an extra $100 per week.
Interest savings of $53,203 could be generated by paying an extra $50 per week on a 30-year, $1,000,000 mortgage, while reducing the loan term by one year and nine months.
These figures fall to $22,480 and nine months when paying an additional $20 per week, while increasing to $97,774 and three years and four months when contributing an extra $100 per week.
“We know no two home loan customers are the same,” Ms Bruce noted.
“We encourage anyone with a mortgage to consider their personal financial circumstances before deciding whether making extra repayments is right for them.”
[Related: ANZ the last major bank to cut savings rates]