Home Loan Product Where Monthly Repayment Is Based on Balance

Henski on 12/09/2024 - 23:27
Last edited 13/09/2024 - 10:29 by 1 other user

I'm after some advice.

I've been making a lot of extra payments over the minimum monthly repayment amount into my HSBC home loan. I wrongly assumed the monthly payment would be calculated based on the actual owing balance and that interest rate, but I have found out the minimum monthly payment amount is locked and won't change at all for the life of the loan.

That isn't suitable once the loan balance gets below 20k etc.

Is there a home loan mortgage product where the monthly payment is based on the actual owing amount?Sorry in advance if I'm naive on this as I'm not very financially savvy.

Thanks.

Financial Home Loan Loan

Comments

  • freefall101 on 13/09/2024 - 00:01
    +2

    Seems a good time to take advantage of any home loan cashbacks and renegotiate the loan to whatever repayment terms you want.

    Also look at moving to a loan with an offset account. If I stop paying my loan, it just draws down from the offset instead.

  • radicalvin on 13/09/2024 - 00:48
    +3

    The minimum amount doesn’t change, but if you are making extra repayment monthly, the term of the loan will be shorter and you’ll be able to complete the loan faster. There shouldn’t be any break cost as long as the loan is variable

  • SmiTTy on 13/09/2024 - 01:49
    +2

    Not sure if any lenders do what you're after. However Ive been told if you call your lender up, they can reduce your repayments if you're ahead but they do that by reducing your loan and locking away the extra repayments meaning you can't redraw if you wanted to. (never tried it so no experience personally)

    I'm assuming that's a one off and not something worth doing every single month though

  • soan papdi on 13/09/2024 - 06:20
    +6

    Check your loan statements. You’ll notice a drop in accumulated interest since there’s money in the redraw. This means your loan is being paid off faster. When your redraw reaches the same amount as your loan, you’re effectively having an interest free mortgage.

    In fact, you don’t want the repayments to reduce every month because the loan would effectively never end before the 30 year period.

  • FezMonkey on 13/09/2024 - 08:18
    +1

    We have quite a bit in our redraw and CBA sent us a notification asking if we wanted to reduce our minimum payment.
    Essentially it's recalculated based on the net figure to the end date, as you are wanting.
    So yes it's possible.

    • wannagrababargain on 13/09/2024 - 10:21

      I would assume if they did that they would capitalise the redraw into the loan and redraw availability would go to $0. Essentially like refinancing.

      • FezMonkey on 13/09/2024 - 10:38

        It didn't for us. Just lowered our payment by say $50 per month and it slowly started to reduce the redraw as it took from it month by month.

  • JimmyF on 13/09/2024 - 08:33
    +1

    I wrongly assumed the monthly payment would be calculated based on the actual owing balance and that interest rate, but I have found out the minimum monthly payment amount is locked

    Yes it appears wrongly assumed indeed, your payments don't come down with extra repayments, but the loan will end early when its paid out. The only thing that can change your minimum loan repayment is the interest rate.

    Interest charged each month is on the principal balance, but at the start of a loan most of your 'repayment' goes to covering interest and a small amount towards the principal loan amount, as you slowly pay down the principal, the interest payments get less, so more of each 'fixed' minimum repayment goes towards the principal and less on interest.

    Lets say in the first year you're paying $1000/month into the loan, so the loan goes down $1000, but $800/month interest is added. So a principal reduction of $200/month.

    As time goes on and you slowly chip away at the principal meaning you pay less interest now your $1000/month still goes into the loan, so the loan goes down $1000, but only $300 interest is added now, so you have a principal reduction of $700/month.

    This is why paying extra at the start of a loan is really important. In the above example, an extra $200/month would mean a doubling down on the principal payment. Basically equal to two months loan repayments for a extra 20%.

    Is there a home loan mortgage product where the monthly payment is based on the actual owing amount?

    Maybe get yourself an interest only loan, as that sounds like what you want.

  • MrThing on 13/09/2024 - 08:34
    +6

    Is there a home loan mortgage product where the monthly payment is based on the actual owing amount?

    no, that's how compound interest works. welcome to maths

    the minimum payment is based upon your loan term, if you vary the loan term you vary the payment. you vary the loan payment you vary the loan term. pretty simple

    maths really needs to be compulsory to year 12

    • avoidfullprice on 14/09/2024 - 06:56

      I thought OP couldn’t maths until I realise they just want a home loan that takes fixed size principal repayment plus that month’s interest. So in the beginning the monthly repayment is higher, then towards end of loan the repayment is bugger all.

      • MrThing on 14/09/2024 - 07:41

        Thats not how home loans work. the bank makes money on interest, its not in their interest to let you pay off a higher principal at the start and less interest and then at the end pay more interest and not much principal…..you know a thing called refinancing kinda ruins that

        If you want the best of all words save cash and get an offset

    • GuyfromMelbourne on 14/09/2024 - 09:30
      +1

      Suncorp offers what he is after. When someone pays extra into the loan. Bank should either reduce the remaining term(which most banks do) or reduce the repayments which Op is after. There is nothing wrong with his math.

    • tomclancy on 18/09/2024 - 06:33

      Suncorp do it. Exactly the way OP describes. I agree with you that maths should be compulsory until year 12, and in this case it's not OP's maths that is failing them

  • El-Rhi on 13/09/2024 - 10:59

    Citi bank home loans used to do this, but they are no longer available.

    Most banks will not allow due to the various risks involved and the specific systems that are used.

    Some banks will have legacy products that used to amortise loans this way, but these would no longer be available.

  • Subere on 13/09/2024 - 11:07

    As others have said. Your repayments are calculated at day 0 to get the loan to zero after 30 years, including interest.
    If you pay extra, you're paying off more principal from the get go and get charged less interest. Means your loan will end sooner.
    I really hope your extra payments are in an offset so you can use them if needed.

    • Henski on 13/09/2024 - 15:00
      +1

      Tx, yes all extra payments are in redraw

  • Gareth on 13/09/2024 - 11:24

    With BankWest we could apply to "Reduce Your Home Loan Limit" - this effectively took the money that was available to redraw into the loan, reducing our minimum payment. (Of course, it's one way - you can't get the money back).

    I assume you have a redraw facility - the banks look at this money as temporary and don't assume it will be there for a minute longer, so your repayments don't reduce. (And it's not like they're going to adjust your minimum payment every week or anything)

    minimum monthly payment amount is locked and won't change at all for the life of the loan.

    Oh no, if the interest rates go up, the minimum payment will increase. 😉

  • Bristhrifty on 13/09/2024 - 12:16
    -1

    You can apply for an interest only loan and then you'll just pay the interest based on your loan balance. If you pay more then the loan balance will reduce.

  • GuyfromMelbourne on 13/09/2024 - 15:27
    +1

    Suncorp does amortisation the way you are after.

    • Henski on 13/09/2024 - 16:41

      tx, ill look into

      • GuyfromMelbourne on 14/09/2024 - 09:38

        You also have the option to not make a repayment if you have already paid extra into the loan. You can cancel direct debits and make payments yourself at your pace. As long as there is money in redraw you will not go into arrears. I hope I am making sense. Or call your bank your bank to understand. There are very few banks left that offer product you are after so your choices will be very limited and you might end up paying higher interest rate/fees because of that.

    • miwahni on 14/09/2024 - 00:46

      Automatically, on a P&I loan? Is it a particular product they're offering? It's not been my experience with Suncorp, that repayment changes based on balance. For which I'm glad as I want to pay it out quicker, not drag the term out with lower repayments.

    • avoidfullprice on 14/09/2024 - 06:50

      After typing my now unpublished post, I realise OP want something that is opposite of amortisation. They want a loan with fixed principal and variable interest repayment, which has high repayment in the beginning and then bugger all towards the end.

    • tomclancy on 18/09/2024 - 06:31

      I can also confirm my Suncorp home loan monthly repayment changes automatically each month depending on how much redraw I have (up & down). I have the standard P&I home loan without offset

  • jlien on 18/09/2024 - 09:12

    might be easier to switch to an interest only product and manage your own additional repayments.

    Downside is that they're typically limited duration so you'd have to switch your product every few years or so. Though you should do that anyway to take advantage of rebate offers.

  • Motozine on 18/11/2024 - 14:59

    Ubank used to have this exact feature and we really loved it, afaik, it's no longer available since they moved their home loan products to the acquired 86400.

    Id love to switch to this type of product, but Suncorp seemingly has quite high rates…

    • tomclancy on 18/11/2024 - 16:45
      +1

      Suncorp seemingly has quite high rates…

      I'm on 5.99% OO P&I variable <70% LVR with Suncorp. They have discounted pricing that you need to request, like the majors. Just need to approach a mortgage broker to have that request made

      • Motozine on 18/11/2024 - 21:21
        +1

        That's really helpful, thank you. I'll keep that in mind

  • leigh8904 on 18/11/2024 - 21:15

    Here is a suggestion, assuming the extra repayments are available to redraw.

    Just let the loan balance pay down to $100 (or whatever small balance you want), then the day before the monthly payment is due, just redraw the amount of the monthly payment, which then gets repaid back to the loan next day. Although could get a bit tedious month after month, not sure if you could set up auto redraw.

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