Extra repayments help you get out of debt faster. Compare home loans that let you do this without paying a fee.
Home loans with unlimited additional repayments can save you a great deal of money over the long run. Even an extra repayment of just $100 per month cuts down your principal balance faster, reducing the loan amount and therefore the amount of interest you're paying.
This feature is usually available with variable rate home loans. You may be able to make additional repayments on a fixed rate loan, but these are generally limited to a certain amount.
Comparison of home loans with unrestricted extra repayments
How much do you stand to save with unlimited repayments?
Dave is trying to secure a home loan of $150,000 that allows for an unlimited amount of extra repayments, and wants to check first that he's not being charged any types of fees for this feature.
With this loan amount spread out over a thirty year term at an interest rate of 5.5% p.a. and monthly regular repayments, he could cut his terms down by six years and three months just by making an additional repayment of $100 per month after the first year. The amount Dave would save in interest over the life of the loan would be an astonishing $36,838.14.
You can use our calculator to work out how much extra repayments could save you on your home loan.
How does a home loan with unlimited additional repayments work?
When you have a home loan that offers a feature like unlimited additional repayments, you won’t be penalised if you pay over a certain amount over the expected loan repayment for the year. As mentioned above, this feature is typically only found on a variable rate home loan. Making payments towards a fixed rate when you're not meant to, or making extra repayments above the allowed limit can come with hefty break costs, which can outweigh the benefits of making extra repayments in the first place. These home loans don't have a limit and therefore don't penalise borrowers for making extra repayments.
You can choose to make additional repayments in large lump sum amounts or just by adding a small amount to your repayment each week, fortnight or month. The more extra money you put towards your loan, the faster you will be able to pay it off.
How to compare these types of mortgages
- Fees and restrictions. While a lender could let you make unlimited additional repayments, they could also charge you for doing so. If this is the case, make sure that the money you’re saving from making extra repayments outweigh the fees.
- Redraw facility. You never know what surprises lay ahead for you tomorrow. When shopping for a home loan with unlimited additional repayments look for those with a redraw facility. This feature will allow you to withdraw any additional repayment you may have made on your loan if you suddenly find yourself in need of that extra money.
- Special terms. In some cases, you may only be allowed to take advantage of this benefit for a limited amount of time. Read the fine print carefully to make sure that you will have this feature available for the life of your loan if it's required.
- Early exit fees. There are some lenders who will welcome additional repayments but charge you a fee if you terminate your home loan early than the terms dictated. Look for this fee when examining the fees of all of the home loans you are interested in.
- Split loans. Some home loans offer the option of splitting your home loan into a variable and fixed rate loan. Check to make sure you are not penalised if you make too many additional repayments while the fixed rate portion of a split loan is active.
Pros and cons of home loans with unlimited additional repayments
- Shortened terms. If you are consistent in making additional repayments, you will be able to own your home outright sooner.
- Save on interest. By making additional repayments, you are changing the base amount of the loan, thereby decreasing the amount of money you will have paid in interest fees over the length of your loan.
- Redraw facility normally available. If you need to use the money that was used towards additional repayments, you can use the redraw facility to take a portion of it back.
- Fees. Some banks will charge a fee for this service, or penalise you at the end of your loan with a high exit fee.
- Limited loan type options. Most fixed rate loans will only allow a set amount of additional repayments to be made each year. By going over this amount you would be subjecting yourself to high fees and penalties. This makes this feature more adaptable to the variable rate home loan.
Things to avoid
- Exit fees. When investigating home loans that offer this feature, try and find those that are not charging any extra fees. You don’t want to be penalised for your hard work in paying off your home loan early.
- No redraw. You will want to also ensure that there is a redraw option with this type of feature. This can allow you to have access to your money again in the event that an unexpected emergency arises.
Frequently asked questions
How are additional repayments made?
In most cases you are able to make your additional repayments at will, either by combining it with your normal repayment or by making large lump sum payments monthly.
Can I be charged if I pay my home loan off early?
In most cases no, but if yours is a fixed rate loan you will want to check if there really is not a limit on repayment amounts. Also compare exit fees to make sure you will not be charged substantially for an early payoff.