First Financial Services

How to own your home earlier

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One of the biggest financial commitments most of us will ever make is the mortgage on our home. So it is no surprise that the potential savings from adopting a smart mortgage strategy can also be remarkable.

Take this example…

Our clients, Steve and Nicole purchased a home for $500,000 with a mortgage of $350,000 repayable over 30 years. With an initial interest rate of 4.50% and monthly repayments, they found they would be paying $288,423 in interest over the period of the mortgage. In fact their first monthly payment of $1,773 would be applied to interest of $1,313 and only $460 to repayment of the capital.

Whilst they realised they had no control over the amount borrowed, the couple did have control over the interest they would be paying. We explained:

  1. Making fortnightly repayments of $887 (half the monthly payments) would save them almost $48,646 interest over the period of the loan, if all other factors remained the same.

  2. Renegotiating their loan with an interest rate 0.2% less (4.30%) would save them around $29,450 over 30 years.

  3. Increasing their monthly payments by only $27 would reduce the term of the loan by three months and save them around $2,620 in interest charges.

Or alternatively…

In the current low interest rate environment additional repayments will only achieve small savings in interest. Rather than make additional mortgage repayments, we explained to Steve and Nicole that they could maintain their existing repayments and invest excess funds in higher yielding assets such as shares. However, we clarified the higher level of risk involved in such investments.

Armed with this information, Steve and Nicole decided to play it safe. They changed their payment schedule to fortnightly and plan to apply any increased income from tax savings or salary increases in the future to the mortgage, reducing the outstanding capital amount as soon as possible.

If you would like to discuss how to save on your mortgage, give us a call at First Financial Services, Nick is a qualified broker with access to over 30 lenders.

Source:
Echoice Mortgage Calculator
www.canstar.com.au

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Dangerfield Finance Pty Ltd ABN 14 105 174 267 trading as First Financial Services is a Corporate Authorised Representative No 293991 of Alliance Wealth Pty Ltd ABN 93 161 647 007 AFS Licence No 449221
Australian Credit Licence 446868 Authorised Credit Representative of Australian Finance Group ACR 372980

The information in this newsletter (including taxation) is general in nature and does not consider your individual circumstances or needs. Do not act until you seek professional advice and consider a Product Disclosure Statement.
Responsibility for the content and opinions expressed in this document rests solely with the author and opinions expressed do not necessarily represent the views and opinions of First Financial Services.

Bolands Centre, 14 Spence Street Cairns QLD 4870
07 4038 3333

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