Calculators & Tools
We did some Googling and according to Canstar, the typical Aussie owes $3,925 on their credit card, has a personal debt of $21,200 (excluding credit cards and property loans) and has a mortgage of $540,166.
Let’s look at how that plays out in monthly repayments and let’s see what happens if we re-finance and invest the difference.
Note – this did not require any more earning capacity, no need to borrow any more money, just straightforward shopping around for the best deal.
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Typical Credit Card Interest Rate = 19.94%
– Source: According to the Reserve Bank of Australia, the average standard credit card rate is 19.94%
Typical Personal Loan Interest Rate =14.41%
– Source: According to RBA data, the total amount of outstanding personal loans in Australia is more than $145.5 billion as of September 2020. The RBA reports that the average variable interest rate for a personal loan is 14.41% and 12.42% for a fixed personal loan.
Typical Home Loan Interest Rate = 3.93%
– Source: Finder. Average variable mortgage interest rate 3.93%
That’s already a huge saving of $974.21/month and all we needed to do was re-finance our home loan!
Let’s see what happens if we INVEST the $974.21 into a fund returning a modest 8% per year
That is EXTRA to what you didn’t have before!
***Note this assumes that you kept going and it doesn’t account for taxation
Accordingly to my Googling, and yes there is a lot of assumptions based on your financial situation, but let’s assume you are in a position to re-finance your home loan rate down to one of the advertised 2% p.a rates instead of the average 3.93% that we started with.
Let’s see what happens if we INVEST the $1,562.76 into a fund returning a modest 8%
There is no secret magic going on here, it comes down to a simple understanding of compound interest.
Yes, there are tax implications and yes there are assumptions about your ability to get finance and yes 8% p.a could be deemed risky. However, the point of this illustration is to demonstrate how paying a little bit of attention to your existing debt and interest rates can pay huge dividends over time.
What’s more, these scenarios did not require any promotions or second jobs, no need to borrow any more money, just straightforward shopping around for the best deal.
All of these calculations are simple to do yourself with these two calculators:
Loan Calculator – sum up your debt here and change the interest rates based on the best deal you can get
Savings Calculator – put the saving in the monthly repayment in this box and hit the go buttons.
Wondering if you can withdraw your super early to use as a house deposit? Read our question and answers on this topic here.General Advice Warning
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