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How can a cup of coffee equate to a four year home loan repayment holiday?

Updated: Nov 6, 2019



How can a cup of coffee equate to a four year holiday on your home loan repayments, a car or overseas holiday? That is the question that I am going to explore in this article. Small life-style changes have a much bigger potential to change the trajectory of our future than what people would generally appreciate. These changes left un-quantified remain abstract. This article takes one of the concepts out of the abstract and quantifies it.


So lets take the example of purchasing a $4.50 coffee every day. This could quite easily apply to a soft drink habit or a buying lunches at work each day, although these latter examples may even have a bigger impact depending on the daily cost. The scenario that I am going to create is someone who purchases a single coffee five days a week while at work who make the decision to redirect these payments into their home loan instead.

Table

Original Loan With extra repayments


Starting balance . $250,000 $250,000

Interest Rate 4.5% 4.5%


Extra weekly payment $98


Term of loan 30 yrs 25 yrs 11 mths

Time saved 4 yrs 1 mth


Total interest paid $206,015​ $173,457

Interest saved $32,558


Firstly, lets look at the affect that paying the additional amount into the loan will have on how long it will take them to pay the loan off. They will now pay the loan off in 25 years and 11 months thus getting their home loan down to zero in a little over 4 years less that originally planned. How good is that? Four years of no loan payments. Four years is how long you have to wait for each olympic games to come around.


And that is not all, they will ultimately save themselves in excess of $32000 in interest, that is money that they will not have to hand over to the bank for the privilege of having the loan. What can we compare that to. That's a nice car, or two cheaper ones. Thats $7000 more than what it cost my wife and myself when we travelled Europe for 5 weeks.


Did you know that you could do all this for the price of one coffee each day, and we only counted work days.

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