# Extra Repayments Calculator (advanced) - fixed interest.

#### Richard Feynman

I've struggled to find and advanced Home Loan/Extra Repayments calculator and I'm not savvy enough with excel to know precicely how to formulate one myself. I have searched the forum too.

I'm wondering if anyone had made or found one, which calculates interest daily so it's extremely accurate? Leap years would need to be factored in too.

What I want, is to be able to work out EXACTLY what impact extra repayments (on any day of the loan term) will make, which is fixed for 15 years.

I'm only allowed \$10,000 in extra repayments per year and I plan on investing in property as soon as it's safe to do so, so this is going to be very important in forming a plan, setting goals and experimenting with scenarios.

Loan Details - PPOR:

• Started 01/10/2010
• Interest calculated daily - 8.09%
• Weekly repayments - \$525.50
• Principal and interest

Any help would be greatly appreciated.

p.s. This is my first post, so hello.

#### Rolf Latham

What I want, is to be able to work out EXACTLY what impact extra repayments (on any day of the loan term) will make, which is fixed for 15 years.

Hi Richard

Welcome

Impact on ?

ta
rolf

#### Richard Feynman

Hey Rolf,

Impact on the balance of the loan (and therefore, its duration, and the amount of interest to be paid/saved).

Because there's a maximum amount I can repay annually, I want to determine how best to approach the loan within my limited options, given that I want to purchase my first IP as soon as it's feasible.

#### alexlee

Why are you limiting yourself to what the loan allows? If you can in fact save more than 10k a year, refinance to a product that allows unlimited repayments.

You're basically asking 'I want a complex spreadsheet to calculate the fastest way I can get to my destination considering my car only has a max speed of 60km'. The real answer is 'get a faster car'.

Meanwhile, learn about offset accounts, refinancing and what it means tax wise.

#### Richard Feynman

Why are you limiting yourself to what the loan allows? If you can in fact save more than 10k a year, refinance to a product that allows unlimited repayments.

I have looked into it - another reason I want to calculate some scenarios to work out my best course of action. However, the loan is only 20 months in. 6 months ago refinancing would have cost me \$18k. Because of drops in interest rates, as of two weeks ago it would cost me \$38k to refinance.

Being fixed rate, an offset account on my current loan offers a partial offset of 1.5% pa.

#### alexlee

If you need to calculate you cashflow so accurately to the point where a leapyear makes a difference, you're not ready. If suggests you're going to stick so close to your projections (which are inevitably wrong, because there are always surprises) that extra fees and repairs might sink you.

That's why you build a buffer. If you try to calculate to the dollar the point where you would consider it 'safe' to start investing, you're not prepared for these surprises.

You might also want to do some soul searching about why you went for a 8%, 15 year fixed loan around the peak of the RBA rate recently. 15 year fixed is unusual, which means you probably asked the bank (CBA?) or your broker what is the longest fixed term you can get because you don't want to run the risk of (as opposed to not having the ability to pay) higher rates.

Understanding your risk profile and personality will be far more useful than isolating \$5 difference in your loan repayment. For that matter, so will taking apart your spending pattern and looking for savings.

#### Peter_Tersteeg

There might be a calculator out there that you could 'fudge' to do this, but it's highly unlikely you'll find anything freely available that can nail it down to the day. There's one or two software programs that checks your repayments given you put figures into them on a daily basis. They could be made to work in the way you want as some are fairly sophisticated. Google 'mortgage repayment checker' or similar and see what you come up with.

I recon I could do it in Excel (my knoweldge level is quite reasonable), but honestly it's more work that it's worth.

As Alex says, if you need to figure out your budget that tighly, you're in real trouble. Life gets in the way of any down-to-the-dollar budget or any investment.

If you're trying to compare investments, you're over-analysing.

#### Rolf Latham

Hey Rolf,

Impact on the balance of the loan (and therefore, its duration, and the amount of interest to be paid/saved).

Because there's a maximum amount I can repay annually, I want to determine how best to approach the loan within my limited options, given that I want to purchase my first IP as soon as it's feasible.

What will u do with this property in say 10 years time ?

I think the capacity for you to buy another place for an IP probably has more to do with the property growth and value, and or your cashflow situation.Because u are in a fixed PI loan with repament limits you cant really slam dunk the loan to get at the equity more quickly.

Advance repayment of even 10 k per year arent going to make eons difference as to when you can leapfrog to the next property, though this would depend a little on the value of the IP obviously

ta
rolf

#### Richard Feynman

Alex, Pete, I'm not running a tight ship financially, Perhaps "safe" was an unwise choice of word.

I have maxed out my allowable extra repayments in year 1 and year 2 of this loan period with ease, I am simply someone who has a strong desire for accuracy. I know, if I wish, I can pay the \$10k every year for the life of this loan and have it paid off in around a decade further. I simply want to experiment with some scenarios to work out my best course of action regarding investment, and to calculate the exact impact of certain decisions.

e.g. What if I switch to monthly repayments, make no extra repayments, and use that money to save for an IP deposit. Or use that money first to renovate my PPOR to increase equity. Or drop a lump sum at the start of year 3 and 4 of this loan as well to drive the principal down, then start saving for an IP.

My financial situation was much tighter at the time of making my first purchase so fixing for a long period was a precaution that allowed my to enter the market with peace of mind. I was not thinking investment, I was thinking security. Since then, my income has jumped enough to be thinking sooner than expected. If I had my time again I'd have opted for variable to free up cashflow.

Rolf, it's likely I'll be renting this place out in 10 years, having renovated it at some stage prior.

I know every scenario is different but the stage I am at now is wanting to know what best to do with my current home loan and finances to make my first IP purchase as soon as possible.

#### alexlee

I am simply someone who has a strong desire for accuracy.

You're never going to be completely accurate when predicting the future. Even if you could accurately model every aspect of this loan, so what? Any investment you buy will have unpredictable cashflows, especially if you go variable. The 15 year fixed suggests you prefer safety, which is fine, but it also means you want 'certainty'. Hence you need to 'know the numbers'. Given that you won't be able to predict the future accurately (which you are desperately trying to do, to feel 'safe'), you should aim to be 'prepared' instead of wanting to 'know accurately'.

Your risk profile suggests you're going to focus too much on 'getting the numbers right' when flexibility is much more important. Who cares whether you will pay \$10 less interest a month by putting \$x into the loan at precisely this time instead of next week, when you can review your spending and easily cut a couple of thousand in expenses a year? Your own statement that you don't run a tight financial ship suggests you probably have a lot of holes in your spending that can be plugged.

I know every scenario is different but the stage I am at now is wanting to know what best to do with my current home loan and finances to make my first IP purchase as soon as possible.

It's not about whether you can purchase as soon as possible, but whether you can actually hold the thing that matters, yes? Understanding is much better than a spreadsheet.

It's not just the numbers. e.g. does the loan allow redraw of repaid principle? If not, while you save interest by repaying part of the loan, you're also losing access to it. Where there is a sudden need for cash (interest rate rise, for example) it's about access, not just the amount of equity. If you can redraw, the redraw would be considered new borrowings. Used to buy an IP, the interest would be deductible (but it also immediately mixes deductible and non-deductible money, which makes things a lot more complicated), which would change the 'numbers' on your investments.

What about the aspects of the IP you want to buy? Clearly it's very different if you want to buy a 300k old house versus a 800k new unit.

You're running the risk of focusing on counting the number of loose pebbles on the road and missing the car that's coming at you. By desperately focusing on the things that you think you can measure, you will be whacked by the unexpected (and inherently unpredictable) things.

This is just my opinion. Just say this is not what you're after, and I'll shut up and you can wait for someone else to give you a really cool spreadsheet.

#### Richard Feynman

Alex, I appreciate your responses considerably though you appear object to my desire to understand as much about the non-variable aspects of my financial situation as I can. Perhaps I've given the ironic impression of tunnel vision because I have made one thread on one aspect of my finances instead of unleashing a torrent of questions across this forum to illuminate the slew of other queries I have and factors I'm aware of (as well as some I'm sure I've yet to consider).

I realise the future, especially investing, will be full of change, much of it unexpected and unplanned.

I am also aware of how important flexibility is. I wish my current home loan was variable, had redraw, could be fully offset etc. However, under the FIXED circumstances of that loan and my financial situation I am free to experiment with scenarios and use the power of mathematics to calculate the effects of different choices simply for a greater level of understanding. I am not blind, quite the opposite. I'm systematically taking a microscope to every aspect I'm able to examine while I build towards my first investment, so when the time comes, I make the wisest, most informed choice.

I have already reviewed my spending and unless I give up a coffee I won't save myself much further money. I have trimmed the fat which is why I am able to meet my maximum annual extra repayments and am able to consider investing, (which is at least a few years off.

When I say "as soon as possible", "possible" means able to hold, even if interest rates skyrocket, my financial situation changes dramatically, and all manner of other **** hits the fan. Bad choice of words again? This is exactly why I am attempting to meticulously assess everything I have the power to, to ensure henceforth I make the best, most informed choices.

I don't imagine my first investment purchase to exceed about \$400,000 given it's to be my first.

And once again, I do appreciate your responses. You obviously are wise, everything said has been valid.

#### Bigtone

are you an engineer?

#### Richard Feynman

Bigtone, I'm not an engineer but I do take a very scientific, analytical and technical approach to much of life.

Terry, after a quick fiddle, that template looks to be quite useful providing I can tweak it a little. Much appreciated!

#### BMan

breaking free of the fixed rate may cost you a bit now but may work out in your favour in only a few years
i think instead of over analyzing it you need to see a broker than may be able to help you with a solution to suit your situation

#### Rolf Latham

Bigtone, I'm not an engineer but I do take a very scientific, analytical and technical approach to much of life.

Sometimes I never have enough data..............I can sort of relate. Ima scientist by bckground.

With all of my "life decisions" I rarely had enough data to make a decision based on logic alone.

More often than not I had to rely on Gut feel or Intuition or whatever you like to call it.

In my personal case, an over reliance on analytical skills meant for much procrastination.

ta
rolf

#### Richard Feynman

Rolf, you make valid points.

So, everyone.

This topic has been valuable. I made good progress tweaking the calculator Terry provided, and have an idea of where I'm headed from now which is what I needed to know.

Having made enough extra repayments on my home loan to survive an entire year of missed weekly repayments without copping a fee, I have some room to breathe and am most strongly considering reducing my home loan repayments to monthly and directing all extra money into savings for my first IP.

#### Rolf Latham

I have some room to breathe and am most strongly considering reducing my home loan repayments to monthly and directing all extra money into savings for my first IP.

Id you werent fixed, we would recommend you SPLIT your loan, make your IP repayment into that split and redraw it, so that your current non ded debt is reduced.

AS you are looking to make the place an IP long term its not all bad

ta

rolf

#### Richard Feynman

Thanks Rolf. Just in case you or anyone knows, is it unheard of for an ERA to be based on the portion of a loan that is split?

e.g. If I split the loan 50/50 would I pay 50% of the full ERA?

#### Rolf Latham

Thanks Rolf. Just in case you or anyone knows, is it unheard of for an ERA to be based on the portion of a loan that is split?

e.g. If I split the loan 50/50 would I pay 50% of the full ERA?

should be a partial break cost, and the full admin fee.

But, until you ask..............them that hold the gold

ta
rolf

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