Extra Re-payments in the First 3 Years of a Fixed Home Loan

Lsk174hdr on 15/06/2020 - 16:51
Last edited 15/06/2020 - 18:37 by 1 other user

I started my home mortgage 11 months back with a fixed rate which I got from that period. In the loan provision, I have an option to pay off $10,000 per year in the fixed term period.

I am wondering if I should use this feature, as I have some money to spare this year (or should I keep in bank account as savings for the emergency fund)

Just wondering how much percentage of the $10000 will go as interest and how much will go towards outstanding amount.
Should I hold any extra repayments till 2 more years (when the fixed period expires) As the rates are lower now and looks like it will stay longer even after 2 years.

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  Mentallysick on 15/06/2020 - 17:01

  +2

  I just top off $7500 to my fixed loan. I am paying 3.75%

  Can not wait to finish the fixed loan term.

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  dasher86 on 15/06/2020 - 17:01

  +4

  what did your bank say when you asked them?

  What happens to your additional repayments on your loan? Are you able to redraw with no fees?
  If so chuck in the money.

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  Seraphin7 on 15/06/2020 - 17:10

  +4

  The $10k will be applied directly to principal.

  In your trade off between paying more into the loan vs. keeping emergency funds, your question implies that once you pay it into the loan you cannot get it back out as redraw. Is this correct? If this is the case, you need to make a decision based on your personal circumstances, where else you might be able to get funds from quickly if it came to it, etc.

  On a purely financial basis, you'll be way more in front by putting into the mortgage, rather than having it in a savings account.

  • 

    Kangal on 15/06/2020 - 20:48

    +1

    I think he's got limits to how often and/or much he can pull out, or how long he can defer payments.

    Though it's tempting to put all that money into the principal directly, it's still a gamble.
    Since he/she has already saved up their 20% home deposit, it's fair to say mortgage shouldn't be a big hassle going forward.
    That means keeping some emergency fund is ideal, it could be in an investment portfolio just as long as it is liquid enough.
    Typically people say have at least $2,000 ready at all times, and others say 3 months salary… but pretty much all agree that eventually you want to get to a point where you have a whole year's worth of expenditure ready/available to you asap.

    …since it sounds like the OP doesn't have this 3month's salary, or 1 year's expenditure available, the sensible thing would be to keep the $10,000 out of the banker's paws for now.

    • 

      virhlpool on 15/06/2020 - 23:40

      +1

      Typically people say have at least $2,000 ready at all times

      That's hardly (or not even) one month's rent or one monthly loan repayment though in a major city.

  • 

    FXD on 15/06/2020 - 21:18

    +1

    I know with Commbank fixed loan, you can't redraw, so once you pay into it it's the banks forever.

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  belesci on 15/06/2020 - 22:05

  +1

  I=p•r•n
  Learnt this in general mathematics ;)
  Won’t save you much unless keeping it in there for a while.

  • 

    belesci on 15/06/2020 - 22:06

    +1

    Just before someone jumps in, this is to calculate day 1 interest savings.

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  SmiTTy on 15/06/2020 - 22:38

  +1

  Of course putting it in your loan will be beneficial because you'll save some interest in the long run. But noone can give you advice on if this is better than saving or putting it into an emergency fund because that's a personal thing based on your own circumstance (and appetite for risk) . If you foresee some large expenses coming up, potential risk of losing job etc, then they're all factors you need to obviously consider.

  Other options : You could put half of it in loan and keep other half in savings, you could invest the whole amount in the stock market for the long haul, but if its all too hard and don't see any reason you might need the money - loan is still a solid option. I'm sure you'll have another 10k in savings again hopefully soon.

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  keejoonc on 15/06/2020 - 22:51

  +1

  It's impossible for anyone to tell you what you should without knowing how much you have in your savings, what your spending habits are like etc. If you think not having access to the $10k could potentially have a significant impact on your financials, then obviously don't dump all this into the home loan.

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  KangarooOz on 16/06/2020 - 01:29

  +1

  I had a similar situation before. You can take a middle ground by paying $1000 a month in any 10 out of 12 months