As premier brokers of home loans in Rockingham, Kwinana and Baldivis, we have the privilege of learning many hidden techniques to maximise the benefits you get from a loan and minimise the negatives. One of our favourite techniques is to pay off your mortgage at the “buffer rate.”

Paying off your mortgage at the buffer rate is one of the simplest and most effective debt reduction strategies that we have ever come across and it can work for almost everybody.

So, what is the “buffer rate?” When a lender decides that you can afford a loan, they calculate what you can afford by adding 2% per annum interest to the current interest rate. In other words, if the current interest rate is 5%, they calculate how much you can afford to pay on a loan of 7%.

This doesn’t cost you any extra money but it does decrease the amount of money they will lend you. That 2% buffer decreases the possibility that you will default on the debt.

But think of what that means for you if you are taking out a mortgage. It means that the borrowing companies have calculated that you could afford to pay on a loan with 2% more interest than the one you have.

This raises a question that is saving a lot of people a lot of money: What would happen if you paid the amount the finance companies have calculated that you are able to make?

Using our mortgage payment calculator, you can easily see how much money you can save on, for example, a mortgage of $350,000 over 30 years. At 5.25% per annum, the monthly repayment would be $1,932.71 but here’s where it gets interesting. When calculating the loan at 7.25%, the payment rises to $2,387.62.

In other words, you would be adding $454.91 to your monthly payment but it would reduce your repayment time from 30 years to 19 years and seven months. This would save you a whopping $134,993.56 in interest.

While we can’t guarantee variable interest rates, we can advise you to make your repayments at the buffer rate — you should do it. Call (08) 9527 1800 today to learn more.