and the Personal Finance Software
Let's start by having a look at some of the numbers and what your bank has planned for you over the life of your mortgage.
In the first chart below we can see the balance of a $700,000 mortgage being paid off over 30 years using the banks standard repayments.
Personal Finance App Mortgage Free - Standard Bank Repayments.
Now, let's add some lines to show where we have paid off half of the mortgage and the balance has gone from $700,000 down to $350,000.
Personal Finance App Mortgage Free - Standard Bank Repayments Halfway.
Despite paying the bank over $1 million in the first 22 years, only $350,000 of that has gone towards paying down the mortgage and you still owe the bank 1/2 the original amount you borrowed.
Personal Finance App Mortgage Free - Standard Bank Repayments 22 Years Later.
The banks have set things up so that $705,418 of your initial repayments go to them in interest charges and towards their multi-billion dollar profits.
Personal Finance App Mortgage Free - Bank Billion Dollar Profits.
By the time you get to 30 years you have repaid twice the amount you originally borrowed, so that $700,000 you borrowed has cost you over $1.5 million.
Personal Finance App Mortgage Free - Repay Over Twice Original Borrowing.
Great if you are a bank, not so good for us homeowners.
But let's take a look at what happens when you make extra repayments.
Using the same example from above, we can see that the monthly repayments are approximately $4,200 per month.
Personal Finance App Mortgage Free - Monthly Repayments.
If we were to increase the repayments by just $250 extra a month, we can see that it would cut 4 years and 7 months off the loan and save us $131,744 in interest charges.
Personal Finance App Mortgage Free - Monthly Repayments.
... or if we set up a plan to cut 10 years off our loan we could save over $307,265 in interest charges.
Personal Finance App Mortgage Free - Cut 10 Years Off Your Loan.
So the question is how much so you trust your bank?
You see the problem is, we all fall into the trap of letting our banks manage and plan our loans.
assignment_lateWe let them tell us how much to repay and how often, and
assignment_lateWe let them calculate out interest charges and fees.
assignment_lateThen, we just keep paying what they tell us to and we don't question their numbers.
But what if they get it wrong?
And what if their repayment schedule isn't right for you? What if it's more about their profits than you being debt free?
With so much of your money at risk should you really be letting someone else manage your mortgage for you?