With the current crop of lower and lower interest rates it’s hard to believe that less than four years ago 9% was not a bad deal from the Bank!
During the GFC more and more people focused on reducing debt and this in part is behind why rates are falling. People simply aren’t borrowing at the levels they were and that hurts the financial institutions. Look at all the ‘free’ GE money, more people than ever actually pay it off before the interest kicks in, hence the marketing hypes to get us to borrow more.
With a mortgage imagine the rate is 7.5%. This is 1.5% less than four years ago and around 1.5% higher than what most are today. If you borrow say $400,000 , instead of paying it off at the current rates, pay it off at 7.5% (around $130 a week more) and clear the mortgage 11 years early and save over $165,000 in interest!
When rates do move upwards (expected late 2013) then the 7.5% mortgage becomes a reality so why not pay that now and reduce the debt?
To pay off the average 30 year mortgage (a lifetime!) early, commit at least half of any payrise to the payments and be mortgage free in around 12 years. Inflation also plays a part in mortgage payments, over time the payment becomes less in real terms against income, use this to your benefit, not the Bank.
by Jeff Royle iLender Mortgage Brokers