Have you ever wished you could pay your home loan off sooner? Well, the good news is that, with a little self-sacrifice, you can! Certain home loan types allow the borrower to make additional home loan repayments on top of their regular weekly, fortnightly or monthly repayments – and these extra contributions can make a big difference.

If you’d like to see the impact these additional repayments could have on your mortgage over the loan term, you can use the loan repayment calculator below to explore how different additional repayment amounts could affect the amount of interest you pay over the life of your loan and how much time they could save you on your home loan.

You can also view and try out our full range of mortgage calculators and tools, including our borrowing power calculator, stamp duty calculators and more.

Why make additional repayments towards my home loan?

Making additional repayments towards your home loan can feel a little thankless at the time, but in the long run it can help you pay down your home loan balance at a speedier rate, and potentially save you a significant amount in interest payments to boot.

While you might not always have the spare budget space to put extra money towards your home loan, it’s a handy option to have in case interest rates drop, or you encounter a windfall.

For example, if your interest rate dropped, you could leave your repayment frequency and repayment amount the same and you’d be technically making an additional repayment towards your home loan amount. Let’s look at an example to help illustrate this point:

Julia’s minimum monthly home loan repayment is $3,000; a number she can currently comfortably afford to continue paying. So, when an interest rate drop decreases her minimum monthly repayment to $2,800, she decides to keep her regular monthly repayment at $3,000, effectively meaning she’s putting an extra $200 into her home loan every month. If she keeps it up, this will save her a significant amount of money, time and total interest on her home loan.

Can I make unlimited additional payments towards my home loan?

Lenders typically only allow for unlimited additional repayments on their variable rate home loans – home loan customers on a variable interest rate can usually make as many additional repayments as they like without having to deal with any fees or charges.

However, borrowers on fixed rate home loans will typically have a stipulated limit on the amount they can contribute in additional payments per year, and exceeding this amount will incur a fee.

The above will also apply to any split rate home loan’s variable and fixed components.

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Can I access my additional repayments?

At first glance, putting even more of your income towards your home loan could be a spooky prospect; what if you end up needing that extra money for bills or unexpected expenses?

That’s where something called a redraw facility comes in, which gives you access to any money you contributed to your home loan in excess of the minimum repayment amount at that time.

You may pay an annual package fee or a higher interest rate in return for a redraw facility and other features, though. You can look at a home loan’s comparison rate and compare it to its advertised interest rate to get an idea of the loan’s true cost versus what you’d be paying for it.

What are the pros and cons of making additional home loan repayments?

Making additional repayments towards your home loan isn’t just a matter of weighing up a series of objective pros and cons. It’s about deciding what’s best for you based on your personal circumstances.

If you have the disposable income necessary to make additional home loan repayments, you may choose to do so in the name of saving money and time on your home loan. However, there are a handful of factors worth considering which may affect your decision:

  • Do you have an offset account?If so, you could choose to simply keep your additional repayments in there in order to offset your interest charges, rather than committing the money to your home loan.
  • Owner occupied or an investment property? If you’ve just moved into a new home as an owner occupier, paying down your home loan ASAP might be a top priority for you. Conversely, if the home loan in question is attached to a secondary investment property, you may not feel it necessary to make additional repayments.
  • What’s your loan-to-value ratio (LVR)?If you had to take out a home loan with a less than ideal interest rate due to a smaller saved deposit and a higher LVR, making additional repayments could help you get a better rate. The more of your home loan you pay down, the lower your LVR will go and the sooner you could potentially apply to refinance your home loan and end up with a more favourable interest rate (subject to you meeting the relevant lending criteria).

The above isn’t an exhaustive list of reasons you may or may not decide to make additional repayments towards your home loan, so much as an example of some of the questions you might want to be asking yourself when deciding what’s right for you.

Frequently asked questions

What’s better: regular extra mortgage repayments or one big lump sum payment?

There’s not an objectively right or wrong answer here, since the right answer will be whatever is most appropriate for you and your personal circumstances.

For example, say you just got a raise; you might decide to increase the size of your regular home loan repayment as a result. If you received a one-off bonus, however, a one-time lump sum payment might be a better choice for you.

You may want to seek professional advice from a mortgage broker or financial services provider if you’re unsure as to what might be best for you.

Can I make additional repayments if I have a fixed rate home loan?

If you have a fixed rate home loan, you’ll typically still be able to make additional home loan repayments. There will, however, be a cap on how much you can make in additional repayments per year.

This cap will vary depending on your lender and loan details but exceeding it will typically incur a fee.

What if I pay my home loan off early?

Paying off your home loan early could potentially incur a discharge and/or break fee, depending on how long it took you to pay the loan off and what type of home loan you had.

Paying off a fixed rate home loan early may incur both a break and discharge fee, whereas customers on variable rate home loans may incur either just a discharge fee or no fees at all. Be sure to check what fees you stand to pay for closing your home loan early with your lender before doing so or refinancing.

Do extra repayments go straight towards my home loan principal?

The value of any extra repayments you make will be deducted from your home loan principal (i.e. the amount you were loaned) unless you have outstanding home loan fees and/or interest charges. If so, your extra repayments will be used to pay these first, with the remainder then being put towards your home loan principal.

Will my home loan repayment amounts decrease if I make additional repayments?

Making additional repayments will generally not reduce the size of your regular home loan repayment amount. You may be able to have your home loan repayments ‘recast’, meaning your repayments will be re-calculated using your remaining term and outstanding home loan balance.

However, if you have a redraw facility on your home loan and have your repayments recalculated, you will likely lose your current amount available for redraw.

Keep it simples by comparing home loans with us!

Whether or not you’re keen on making additional repayments, what matters first and foremost is comparing your options upfront. We can help you compare a wide range of home loans from a number of different lenders in order to get an idea of what’s on offer, and help you make a more informed final decision as a result.

So, what are you waiting for? Compare the Market makes comparing home loans simples!

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