Canstar’s Sally Tindall has found us a treasure trove of monthly savings.
ANALYSIS
Already feeling the effects of the RBA’s February rate hike?
You’re not alone. Mortgage holders with a $500,000 loan balance face an average monthly increase of $79 to their repayments, while those with a $1m loan are staring down an average $157 extra per month, according to Compare the Market figures.
Broken down, the extra repayments from the above loans range between $2 and $5 a day, which doesn’t sound like a lot, but can actually be the straw that breaks the camel’s back for those already stretched near capacity.
But what if you could save up to 10 times that amount each month by making some tweaks to your spending habits?
And if you compounded those savings by putting the money back into your mortgage, what would be the result?
Canstar data insights director Sally Tindall went looking for some meaningful savings and unearthed quite the treasure trove.
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Is this really a smart way to spend your money?
In fact, she found eight measures that could save a total of $735 a month, for a dual income household.
“Small savings might feel like a drop in the ocean, but when directed into a mortgage, they can create a massive ripple effect,” Ms Tindall said. “Every day those savings are in the mortgage, is a day you’re not charged interest on that money, something banks calculate 365 times a year.”
The biggest savings measure was to switch 50 per cent of the family supermarket shop to cheaper, or no-name brands. This measure would yield $202 a month saved.
An impressive $130 a month could also be saved by bringing lunch from home instead of spending $15 each, just one day a week.
Likewise, cutting out just two takeaway coffees each a week means another $87 saved.
“Fewer coffees a week doesn’t pay off a home loan, but overtime, it can have a huge impact,” Ms Tindall said. “Cutting out two takeaway coffees a week at $5 for a cup, over a year, that’s $520 in extra contributions. If your partner does the same, you’re looking at $1040 a year. After 10 years, that’s $10,400. In the mortgage for the next 10 years, those extra contributions could save you as much as $3,627 in interest charges as well.”
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Supermarket savings can really add up. Picture: Justin Tallis.
Moving mobile phone plans from the average to the cheapest provider would save a couple another $34 a month, while switching to the cheapest electricity provider is worth another $23 a month.
Say goodbye to two bottled drinks each per week and save $69 a month. Then cut two streaming subscriptions (if you’re like me, you will still have some other subscriptions leftover afterwards) and there’s another $40 a month.
Meanwhile, odds are that you’re not on the best mortgage deal for your situation. If you can refinance or renegotiate your home loan to be 0.25 per cent less, Ms Tindall said you can save up to $150 a month.
Pick and choose some or all of those savings measures and you will find yourself with a handy bit of extra money each month. Now put that into your mortgage and watch the savings grow.
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Our spending habits can have a big effect. Picture: John Appleyard
Say you have $500,000 mortgage and 25 years remaining on your loan, the Canstar numbers show you can save $62,000 over the life of the loan and take three years off the mortgage, by making $200 of extra repayments per month.
Up that to $400 extra and you can pay off your mortgage five years early, with a total saving of $108,000 plus.
Chip in $600 a month extra and knock seven years off your repayment term, with total savings of $144,600. Saving $140,000 plus on a $500,000 loan balance is significant.
If you have a $1m loan, with 25 years to go, the extra $200 a month will save you $67,000 and 19 months. An extra $400 nets $125,000 in savings and three years off the loan term. The $600 option saves $174,000 and takes more than four years off your mortgage.
“Knocking hundreds of thousands off your mortgage is more achievable than many borrowers realise, Ms Tindall said. “Pocket change can be a powerful tool to achieve this.”
Meanwhile, Margin Finance director Damien Medici said he believes most households could save up to $1500 a month by auditing finances and cutting back on incremental spending items such as delivery apps, streaming, eating out and impulse buys.
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