Have you ever stopped to consider how much your home loan will cost you if you let it run to its full 30 year term?
When we take on our home loans we have good intentions of paying it back early but then life seems to get in the way. But getting comfortable with our mortgage will cost you more than you think.
The table below shows just how much interest you are likely to pay on a 30 year home loan at different interest rates, keeping in mind interest rates are at record lows and are more likely to increase than decrease over the next few years.
| Loan amount | Term of loan | Interest rate | Interest paid | Total paid | Interest to principal ratio |
| $100,000 | 30 years | 6% | $115,838 | $215,838 | 1.15X |
| $100,000 | 30 years | 5% | $93,256 | $193,256 | 0.93X |
| $100,000 | 30 years | 4% | $71,867 | $171,867 | 0.72X |
| $100,000 | 30 years | 3% | $51,778 | $151,778 | 0.52X |
| $100,000 | 30 years | 2% | $33,062 | $133,062 | 0.33X |
I have for many years used a simple strategy with many of my clients to help them pay off their mortgages in half the time. In the process they have saved themselves tens if not hundreds of thousands in interest.
Step # 1: Identify Your Total Loan Repayment
Let’s look at the following scenario:
| Loan Amount: | $100,000 |
| Variable Interest Rate: | 5% |
| Loan Period: | 30 years |
Monthly Repayment Calculator Result
| Loan amount: | $100,000 |
| Repayment standard: | $536.82 |
| Loan term: | 30 years |
| Total interest paid: | $93,256.32 |
Loan Amortisation Table
| Year | Month | Repayment | Interest | Principal | Balance |
| 1 | 1 | 536.82 | 416.67 | 120.15 | 99,879.85 |
| 2 | 536.82 | 416.17 | 120.65 | 99,759.20 | |
| 3 | 536.82 | 415.66 | 121.16 | 99,638.04 |
We can see that the total loan repayment is $536.82 per month. We calculated this using the following ‘Mortgage Repayment Calculator‘.
Step # 2: Identify Your Principal & Interest
Identify the how much of this month’s repayment is principal and how much is interest. In the example above the interest is $416.67 and the principal is $120.15. You will see that these figures change each month. As the loan balance decreases the interest also decreases.
Step # 3: Double Your Principal
Commit to doubling the principal component of your loan each month. We determined in Step 2 that we pay $120.15 to our principal payment, therefore we would plan to pay an extra $120.15 off our home loan this month.
By simply paying an extra $120.15 a month, a mortgage of $100,000 would be able to be paid off in half the time.
Do you think you will be able to pay off your mortgage in half the time? Let us know in the comments below!