Paying off a home loan is a big commitment. Often times, home loans can span for over thirty years; this can add up to hundreds of thousands of dollars in interest charges. One way of minimising the duration of your home loan - as well as the total interest you pay over the life of your loan - is by making extra home loan repayments.
Making extra repayments on your home loan is a good way to chip away at your principal loan amount faster. This is because any additional repayments you make go directly towards paying off your principal; rather than your principal and interest owing. As your principal amount goes down, so does the interest you’re charged.
Paying extra on your home loan involves making voluntary repayments in addition to your regularly-scheduled weekly, fortnightly, or monthly home loan repayments. In doing so, you can shave off more and more of your principal amount - which is the amount you originally borrowed - meaning the more extra repayments you make, the less you have to pay off.
Generally speaking, you will likely only be able to make additional repayments if you have a variable interest rate, or a split loan with both a fixed and variable rate.
In some cases, you could be penalised for making additional repayments during a fixed-rate period of your home loan. But don’t fear; fixed-rate periods come to an end, and most variable interest rate home loans allow you to make additional repayments.
At loans.com.au, we offer unlimited extra repayments, but we’ll discuss that in a moment. For now, let’s illustrate how making extra repayments could work for you with a hypothetical example.
If you had a $500,000 principal using the Smart Booster Home Loan - meaning you’re paying a 1.85% interest rate p.a. (2.21% comparison rate) over 30 years - your estimated repayments are $1,810.82 monthly. This would mean you end up paying $151,895 in interest charges over the life of your loan. If you paid $200 in extra repayments each month, your total interest paid would be $131,047.
This would mean you’d save $20,847 in interest charges, as well as almost four years off the life of your home loan.
At loans.com.au, all of our variable interest rate home loans allow you to reap the benefits of making unlimited additional repayments, as well as the option to include an offset sub-account. Both of these features can allow you to pay off your home loan faster by paying less in interest over time.
There are many benefits when you decide to make regular extra repayments. As you can see with the example above, even a small amount can make a huge difference in the long run. Here are the top three advantages of home loans with unlimited additional repayments:
You can save on interest: The more money you owe, the more interest you’ll pay. If you make extra mortgage repayments on a regular basis, you are lessening the principal amount you owe which will lessen the interest payable over the term of your loan.
It pays off your home loan faster: Paying extra each week or month consistently will reduce the time it takes to pay off your loan, helping you reach your home ownership goal a lot sooner.
You can redraw the money: If you have an offset sub-account, you can redraw the extra repayments you made when you need the money.
Make sure to check out our home loan products so you can enjoy the benefits of unlimited additional repayments on your mortgage.
Tags: additional repayments | home loan | mortgage payments