Home Loan Lump Sum Repayment Calculator

Find out how much time and interest you can save by making an additional repayment to your home loan using Savvy’s lump sum repayment calculator

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, updated on August 8th, 2023       

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‘When life gives you lemons, make lemonade.’  This saying definitely applies to paying off your home loan, so if you’re in the position of being able to make a substantial repayment off your loan, you should seize the opportunity.   Savvy’s lump sum repayment calculator helps you calculate your savings when you pay a chunk off your loan.

Lump sum repayments calculator explained

How do I use the lump sum repayment calculator?

First, enter your loan details into the lump sum repayment calculator.  Click on the green arrow button to change your repayment frequency from monthly to fortnightly or weekly.  Next, enter in the lump sum you wish to pay off, and the point in time when you’re looking to make this repayment.

Click anywhere on the page to see your results. The chart will show you by how much the extra loan repayment has reduced your loan term, and the results will also show you how much interest you’ve saved by making the repayment.

Is it better to make an annual lump sum repayment or frequent smaller repayments?

It’s better to make frequent, smaller extra loan repayments if you’re able to, simply because home loan interest is calculated daily.  If you make a lump sum repayment once a year, for the remaining 364 days of that year, you’ll be paying interest on your loan as normal.  Contributing an extra repayment each month, for instance, gives your interest 12 chances to reduce further, compared to the one which comes from a single lump sum.  As such, more frequent additional repayments will reduce the interest you pay most effectively.

How is home loan interest calculated?

Multiply your loan balance by your interest rate (as a decimal) and then divide this sum by 365 days.  This will give you your daily interest. 

Multiply this number by 30 (if there are 30 days in that month) to get your monthly interest amount. 

For example, if your loan balance is $250,000, and your interest rate is 2.3% p.a., the calculation for daily interest would be:

(250,000 x 0.023) ÷ 365 = 15.75

This means you are paying $15.75 per day interest on your $250,000 loan.

However, rather than do calculations manually, it’s far easier to use Savvy’s mortgage repayment calculator to instantly do all the hard calculations for you.

Can I refinance and reduce my loan term?

Yes, you can – if you find yourself in the position of being able to make regular additional repayments on your home loan and want a more permanent solution to pay off your loan faster, it may be time to refinance to a loan with a shorter term.  This will increase your loan repayments but mean you pay off your mortgage faster.  Use the mortgage repayment calculator to play around with figures so you can see for yourself how making larger repayments for a shorter period can save you thousands in interest.

For example, on a $400,000 loan taken out for 30 years with a 2.5% interest rate, you’ll pay $168,760 in interest with fortnightly repayments of $729.  If you took out a 25-year mortgage instead, you’ll pay $827 in repayments but the total interest paid will only be $138,123, a saving of $30,637.  This is the difference a lump sum can potentially make to your home loan repayment experience.

Make sure that if you do refinance, you’re able to refinance to a loan with a lower interest rate and that you’re not penalised by having to pay expensive early exit fees (also known as break fees) on a fixed term loan.  Savvy is a great place to compare home loans and provides you with accurate and up-to-date comparison information, so you can make the best choice of loan to fit your individual financial needs.

What are my choices if I suddenly receive a lump sum?

Frequently asked questions about home loan lump sum repayments

Will paying a lump sum off my loan reduce my mortgage repayments?

No – by paying a lump sum off your loan, you’ll reduce the principal you owe, but your repayments won’t decrease.  If you do pay off a lump sum, or make any extra loan repayments, use Savvy’s mortgage repayment calculator to work out how much interest you’ll save over the life of your loan.

Can I pay off my loan with a lump sum but keep my mortgage open for the future?

Yes – it’s possible to pay off your existing loan but keep your mortgage open to save you having to refinance in the future.  This process is known as ‘porting’ your loan. This can be a useful feature if you’re selling your existing home and buying another, but don’t want to have to go through the whole application process to refinance for a new mortgage.  However, you may be restricted in terms of the choice of property (your lender may require it to be of equal or greater value to your current property) and charged a fee to do so.

I have a split loan. Should I make lump sum repayments to the fixed or variable portion?

You may find there are annual limits to the amount you’re permitted to pay off your fixed loan, so it makes more sense to pay off a portion of your variable rate loan if you are lucky enough to receive a financial windfall.  Ask your lender if you do have repayment limits on your fixed rate loan.

Can I add a redraw function to my loan after I've made a lump sum repayment?

Yes – however, the vast majority of variable rate home loans come with redraw facilities built-in regardless, so it’s not generally an issue you’ll have to worry about.

Is it better to use an offset account or a redraw account for my lump sum windfall?

That will depend on the terms of your redraw account. Some redraw accounts have limits on the number of withdrawals you’re permitted to make per month or per year, or they have a dollar cap amount (often $10,000).  An offset account generally offers far greater flexibility, so you’re likely to find this to be the better option in most cases.

If I pay off my loan with my lump sum, will I have to pay early exit fees?

If you’re currently paying a fixed term loan, you may have to pay early exit fees to get out of your fixed loan commitment.  Ask your lender how much your early exit fees will amount to, and then work out if you are better off waiting until your fixed rate has expired before closing your loan.  You won’t have to worry about early exit fees for variable rate home loans, however.

Can I use the existing equity in my home loan instead of a lump sum?

Yes, you can use the existing equity in your existing home loan as security or as a deposit on a second investment property.  This is a very common way to finance an investment property and to grow your wealth.

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