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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.
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.
Are you better off putting extra repayments into your home loan or into your super? Check out our guide to help you work out which one is more profitable.
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.
Fixed rate home loans that allow additional repayments
How extra repayments can see you pay your loan off sooner
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.
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.
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