Oops I did it again.
Earlier this year, I shared about how I used my Christmas bonus (and some savings) last Dec2013 to partially prepay my home loan. Well time flies and yours truly was blessed enough to receive a Christmas bonus once more. So as planned, I used parts of it to once again partially prepay my home loan.
Read on for the details.
Last year, for a sample figure of PHP100K, I was able to save 44.5K worth of interest payments and accelerated my home loan balance for 8 months (compared to just paying the monthly amortization, which I still do by the way).
This year, let’s say I once again prepaid my home loan an amount of PHP100K (adjusted for illustration purposes and for consistency).
The breakfunding cost and processing fee now is lower compared to last year since the sum of this is usually a function of the loan balance, which is comparably smaller now.
Likewise, as the loan ages, a bigger portion of the amortization goes to principal, as such the interest saved this year is slightly lower compared to last year but it is not a bad thing because it means more of what I paid went to actually reducing the loan balance rather than paying interest. Hence, time saved this year is actually longer than last year. Table below shows the summary:
Cumulatively, I have spent PHP200K to partially prepay my home loan. Could have considered other investment options, yes, but I can’t say no to an easy outright return of PHP84.5K. As they say a peso saved is a peso earned so for me, I earned PHP84.5K in the process.
Further, I got to accelerate my balance for 17 months. That means I will graduate from my loan almost a year and a half earlier and spend my money on other investments instead. That’s a lot of time to make other investments grow coming from freed up capital.
How about you? What did you buy for yourself this Christmas?