Home Loan Extra Repayments Calculator

Savvy’s calculator will show you how making extra repayments on your home loan can save you thousands in interest over the years

Last updated on April 20th, 2022 at 02:47 pm by Cate Cook

Knowing exactly how much interest you can save if you make extra repayments to your home loan can be incredibly motivating. Savvy’s extra repayment calculator will quickly and simply give you this information, so you can see first-hand how much your home loan’s additional repayments could save you in interest.

Home loan extra repayments explained

How do I use the extra repayment calculator?

Enter your loan amount, interest rate and loan term and use the green box with an arrow to select the frequency you make your loan repayments – either weekly, fortnightly or monthly.

Next, enter in the additional contribution amount you can afford to pay on top of your standard loan repayment and enter after how many years you start to make these additional repayments.

Your results will be shown in both chart form and actual figures.  You’ll be able to see the time you can shave off your loan and the interest savings you’ll make in the ‘view your results’ panel.

Savvy’s home loan additional repayment calculator will help you monitor your loan payment progress and keep you motivated to pay off your loan as quickly as possible.

What are my options for making extra repayments?

  • Pay extra off your variable rate loan to reduce your loan principal and save yourself time (on your loan term) and money (spent on interest payments)
  • Pay extra off your fixed rate loan as a lump sum (up to your loan additional repayment limit for that year) and pay that amount off in subsequent years
  • Set up an offset account attached to either your variable or fixed rate loan, and deposit additional repayments into that account, so that the amount of interest you pay on your principal will be reduced on a dollar-for-dollar basis
  • Make additional repayments into a loan account which has a redraw facility, which will allow you to access your savings if needed in the future
  • If you don’t have an offset account or a redraw facility, or your fixed rate loan doesn’t allow you to make additional loan repayments, consider refinancing your loan to gain additional features which do allow you to make additional repayments
  • Refinance to another loan which has a shorter loan period.  Your repayments will be increased if you reduce your loan term, but you’ll end up paying less interest overall.

Are there penalties for making additional repayments on fixed rate home loans?

Yes – when you take out a fixed rate home loan, you sign a contract with your lender which guarantees your lender a certain amount of interest.  If you subsequently break this contract and either pay off your loan early, refinance to a lower interest rate loan or make additional repayments to reduce the size of your loan, your lender will lose that guaranteed interest.

If a lender does suffer a reduction in income (or a loss, if they’ve also borrowed the money at the expected interest rate), they’ll pass on this loss to you.  That’s why early exit fees (also known as break fees or early repayment adjustment fees) are charged. 

Such fees or penalties are based on the size of your loan, the original loan term remaining and the interest loss suffered as a result of you breaking your fixed term contract.  In some cases, such early exit fees can amount to hundreds or even thousands of dollars.

Pros and cons of making additional repayments

PROS

Pay less interest overall

You’ll pay less interest on your home loan if you make additional repayments, as you’ll gradually reduce the size of your loan.  This, in turn, will reduce the interest you pay (because home loan interest is calculated daily, based on the amount of money borrowed)

Pay off your home loan more quickly

Each additional repayment you make will mean you’ll shrink the size of your loan and therefore pay your loan off more quickly, potentially shaving years off your original loan term.

Reduce the financial stress of your mortgage

If you make additional repayments on your mortgage, not only will you reduce the amount of interest you pay overall, but you’ll also create a ‘buffer’ in case you suffer a financial setback such as redundancy or expensive house repairs.  Getting ahead on your home loan repayments will reduce the financial stress of your mortgage.

Improve your credit rating

Paying your home loan regularly and on time, plus making additional repayments, will illustrate to future lenders that you are a responsible borrower and may help to improve your credit rating.  In turn, this will stand you in good stead when you need to refinance or apply for another loan.

Access to your additional money when you need a lump sum

If you have a redraw option on your variable rate loan and make regular additional loan repayments to get ahead, you could access your savings to help pay for home renovations, a new car, or other big-ticket items. This could be a cheaper option than taking out an expensive personal loan to pay for unbudgeted expenditure.

CONS

If you’re a property investor, you may lose your tax offset benefits

If you’re a property investor and have an interest-only loan which you claim as a tax deduction, you may reduce your tax deduction if you pay a lump sum off your loan, therefore reducing the wealth-building effectiveness of your investment property.

You may pay higher fees

Features such as offset accounts can come with a price tag attached, so they may cost you more than a standard loan. This can come in the form of a higher interest rate (typically 0.1% higher on a variable rate loan to have an offset account added) or additional monthly fees (for example, a $10 monthly ongoing fee for a standard loan account).

Frequently asked questions about home loan lump sum repayments

Do all fixed-rate home loans have a cap on additional repayments?

Not all fixed rate loans will come with a repayment cap, but the majority do.  This cap is usually between $5,000 and $10,000 a year, or a ‘tolerance amount’ of around 5% of the total value of the loan.

Is it a good idea to use my redundancy payment to pay off my home loan early?

This will entirely depend on your loan’s terms and your financial circumstances, including if your redundancy payment is your household’s only source of income, what other assets you have, your age and your future income prospects.  It would be best to consult a financial planner to get more detailed information about whether to use your redundancy payment in this way.

Do I have to ask my lender if I want to make additional repayments?

You may have to – if you have a fixed rate loan, you may have to make an application to your lender to make additional repayments, but this will depend on the original terms of your loan.  However, if you have a variable rate loan, it’s often easier to make additional repayments without having to apply or get your lender’s permission to do so.

Will my monthly repayments reduce if I pay a lump sum off my loan?

No – making additional repayments will not reduce your monthly repayments, but they will reduce the length of your loan as you’ll be able to pay your loan off more quickly and therefore save on interest payments.

Is there any difference between making home loan repayments weekly and monthly?

Yes – it can make a big difference to the overall amount of interest you pay whether you make your mortgage repayments weekly or monthly.  It’s better to make repayments either weekly or fortnightly, rather than monthly, because interest is calculated daily, so every day counts.

Will I save more if I make additional smaller repayments frequently?

Yes – you’ll save more on interest this way.  Use the home loan additional repayment calculator to see for yourself how payment frequency affects the cost of interest.

Can I have my wages deposited directly into my offset account?

Yes – many Australians have their wages or salary paid into their offset account, and this is a very practical way of making your pay work harder for you.