The loan calculators allow you to enter your existing or proposed loan amount, the loan term and the interest rate, and the loan calculator then quickly provides you with your monthly repayment (on an interest only or principal and interest basis). If you feel that the monthly repayment is too high for you to manage you can reduce this by changing the loan term. The longer the loan term, the lower your mortgage repayment.
When you are in a variable rate facility, you will generally have the option to increase your monthly repayments if you wish to. For this reason you may be better to take your mortgage for the longest available term (currently 30 years with most lenders although some go out to 40 years) so that in the event that your circumstances change, or you have other temporary priorities for your money (purchase a new fridge, holiday etc) then you can apply your surplus cash to that purchase, as opposed to being committed to the higher monthly mortgage repayments required because you settled with a shorter loan term mortgage.
Once you lock in your loan term you must meet your minimum calculated monthly repayment. If you decided that you could manage the repayments over 15 years and chose this as you loan term, then if your circumstances alter, changing the loan term requires a variation of mortgage (an increase in the loan term) and will result in additional legal costs and other fees. Better then, to consider the longer term facility with the lower minimum repayments but be disciplined and endeavour to commit to higher monthly repayments from the outset of your loan. The loan calculator will demonstrate to you just how much you will save in interest by making higher monthly repayments and paying off your loan much sooner as a result. By way of an example, by making an additional $50 monthly repayment on a $250,000 home loan you can save up to $40,000 in interest. That is a significant amount.
Many lenders encourage borrowers to make fortnightly rather than monthly repayments but the impact of this over the term of your loan, and in relation to total interest paid is nominal. Paying your interest on a fortnightly basis for example, on a $250,000 loan @ 8.25% p.a. will only save you around $300 in interest. You should make sure that if you are paying fortnightly there are no bank fees applying for periodic or direct debits because over the term of the loan these may well exceed the $300 savings in the example shown.
Get yourself familiar with the loan calculators available on the internet as you will find them useful as a guide to the benefits of making extra repayments.
Vicky Edema has been the Managing Director of Austral Mortgage Corporation since 1992, the company provides an easy to use mortgage calculator or
loan calculator tools and offers various options for mortgage
refinance.
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