How does a lump sum payment affect my mortgage?
Placing a lump sum payment on your mortgage won’t lower your repayments. It will help you to save on interest and lower the total amount outstanding on your mortgage. Since the amount of interest is based on the principal of the loan, the lower this amount, the lower the interest rate. By making a lump sum or extra payments you could save tens of thousands of dollars.
How will extra repayments affect my mortgage?
Like the lump sum payments, making extra repayments on your mortgage could cut the interest charged on your loan and reduce the time it takes to pay off your mortgage.
Interest is charged on the principal amount and in the early years of a loan most of your minimum repayment goes towards paying that interest. Only a certain portion of the repayment goes towards the principal amount.
Our Extra Repayment Calculator outlines the impact of making regular extra payments to your loan.
Extra And Lump Sum Payment FAQs
By paying your mortgage repayments weekly or fortnightly, the extra money in redraw or offset will bring down how much interest you pay every month or accrue every day, and throughout the life of your loan.
Making extra home loan repayments can prove useful. Depending on whether your home loan lender offers this feature, you could be able to redraw on the extra repayments you’ve made over time, which can be handy if you need access to funds at short notice.
The best solution of these two would depend on your personal situation. Whether you have some extra income that can be put towards your loan ongoing, or if you have received a bonus, tax return, or an inheritance.
We recommend you check if your mortgage allows you to make additional payments monthly or in a lump sum towards your principal. Regardless of the amount of funds applied towards the principal, paying extra installments towards your loan can make a large difference in the amount of interest paid over the life of the loan.
Additionally, the term of your mortgage can be significantly reduced by making extra payments or a lump sum. By making one extra payment per year you could shorten a 30-year mortgage by up to five years!
Here at loans.com.au , most of our variable products allow for extra repayments with no penalties.