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A RISE IN INTEREST RATES               7/2/2007|BACK|

A RISE IN INTEREST RATES

When interest rates rise your repayments on a loan will be more costly due to the increased interest charges.
You will not be affected by a fall or a rise in interest rates if you have a ‘fixed’ interest rate loan.

Most lenders will offer you the ability to maintain your repayments at the same level as before the ‘rise’ and increase the term of the loan. This increases the time that it takes you to pay out the loan and is costly.

If you can afford to pay the increased repayments … pay the higher repayment so that you can pay out your loan earlier.

A 1 % rise in interest rates can have a dramatic effect on the cost of your loan.

 

EXAMPLE  1:

6 %  INTEREST

7 %  INTEREST

8 % INTEREST

 

 

 

 

Loan Amount

$100,000 . 00

$100,000 . 00

$100,000 . 00

Term of Loan

25years

25years

25years

Repayment Frequency

monthly

monthly

monthly

Number of Repayments

300

300

300

Repayment Amount

$       644 . 30*

$       706 . 78*

$       771 . 82*

Total Repayments

$193,290 . 00*

$212,034 . 00*

$231,546 . 00*

Total Monthly Fees ($10 x 300)

$    3,000 . 00

$    3,000 . 00

$    3,000 . 00

 

 

 

 

Total Amount Repaid

$196,290 . 00*

$215,034 . 00*

$234,546 . 00*

 

 

 

 

Increase in Amount Repaid

---

$ 18,744 .  00*

$ 38,256 .  00*

 

 

 

 

Increase in Monthly Repayments

---

$         62 . 49*

$       127 . 52*


 

EXAMPLE  2:

Interest  6 %

Interest Rises to  7 %

Interest Rises to  8 %

Interest Rises  BUT  you maintain the same  repayment amount.

 

 

 

 

 

Loan Amount

$100,000 . 00

$100,000 . 00

Not Possible as the

Term of Loan

25years

33yrs, 8mths

Repayment does not

Repayment Frequency

monthly

monthly

Interest.

cover the

 

Number of Repayments

300

406                            

 

Repayment Amount

Total Repayments

$       644 . 30*

$193,290 . 00*

$      644 .  30*

need

$261,585 . 80*

Repayments would

 

to be increased.

Total Monthly Fees ($10 x 300)

$    3,000 . 00

$    4,060  .00             

 

 

 

 

 

 

 

 

 

Total Amount Repaid

$196,290 . 00*

$265,645 . 80* 

 

 

 

 

 

Increase in Amount Repaid

---

$ 69,355 .  80*   i.e.  69 % of the amount borrowed

This example shows that if interest rates rise you should pay the higher repayment.
* These figures are for each $100,000 borrowed.



Author Name
Kevin Nowland -



Other Articles in this Category
  COMMON AREAS OF LENDERS’ MISTAKES
  HOW LENDERS CALCULATE INTEREST
  THE EFFECTIVE INTEREST RATE: WHAT YOU REALLY PAY*
  LEAP YEARS - THE GREAT RIP - OFF !
  WHY YOUR LOAN AMOUNT REDUCES SLOWLY
  EFFECT OF BANK FEES ON THE TERM OF THE LOAN
  EARLY REPAYMENT: AVOIDING PENALTY INTEREST
  FIXED INTEREST LOANS: EARLY REPAYMENT COSTS
  SAVING $ ,000’s ON YOUR LOAN
  A FALL IN INTEREST RATES
  LINE OF CREDIT CONCEPT
  SELECTING THE CORRECT CREDIT CARD
  GOING GUARANTOR FOR SOMEONE
  HOT TIPS IN DEALING WITH YOUR LENDER
  QUESTIONS LENDERS WILL ASK OF HOME LOAN BORROWERS
  QUESTIONS LENDERS WILL ASK OF BUSINESSES
  QUESTIONS BUSINESSES SHOULD ASK of LENDERS
  CASES OF OVERCHARGING
  THE BANK STATEMENT
  SAMPLE STATEMENT 1 HOME LOAN CHECKER
  SAMPLE STATEMENT 2 HOME LOAN CHECKER
  SAMPLE STATEMENT 3 HOME LOAN CHECKER
  SAMPLE STATEMENT 4 HOME LOAN CHECKER
  SAMPLE STATEMENT 5 HOME LOAN CHECKER
  SAMPLE STATEMENT 6 HOME LOAN CHECKER
  HOW TO CHECK YOUR CHARGES
  GLOSSARY OF BANKING TERMS


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