How to access extra payments

[convert2online]

Hi everyone

Have a mortgage for about 8 years now with Commonwealth, during this whole time I had never reduced the minimum repayment while the interest rates dropped.

I had assumed that because I had never reduced the minimum repayment that I was over paying and I could access this extra money anytime but to my surprise speaking to the rep I have no money to redraw and cannot access it because that's not how it works! I would have reduced the minimum years ago if I had known this.

The rep simply asked if I want to top up my loan, however I had already tried this and due to my complex situation they weren't helpful and I simply left it.

Surely there must be some way to access this extra money? Do I need to switch to another loan provider?

thanks!

 

[Aaron_C]

You must have gotten on the low rate product?

 

[alexlee]

There are a number of lessons here:

1) Never assume your loan has a certain feature. Ask the bank or your broker first.

2) Loans with redraws usually state the available redraw on statements or internet banking (because the bank wants you to redraw). If there is no redraw amount, question whether there is in fact a redraw.

3) Borrow when you can, because circumstances change.

4) When borrowing, don't just focus on the lowest rate. Make sure it has the loan features you want, even if you have to pay a little more.

5) Have a good broker on call.

 

[Terry_w]

And the bank could have saved you from contaminating the loan by mixing private and deductible debt!

 

[convert2online]

Hmm maybe I'm not getting how a mortgage is calculated

I thought that when the interest rate goes down so does the minimum required payment so I will still pay it off in the 30 year mortgage timeframe. Now if I didn't reduce the repayment to the new minimums each time the interest rate has gone down that means I'm paying extra?

 

[alexlee]

I thought that when the interest rate goes down so does the minimum required payment so I will still pay it off in the 30 year mortgage timeframe.

Not necessarily, as you've experienced yourself.

Now if I didn't reduce the repayment to the new minimums each time the interest rate has gone down that means I'm paying extra?

Yes, you're paying extra, and that reduces your loan amount. So you're paying off the loan faster than the original loan term. However, just because you're reducing the loan amount doesn't mean the extra payments are available for redraw, redraw being a specific loan feature that isn't available on all loans.

 

[Colin Rice]

Ask for a product switch to a product with redraw or better still an offset.

 

[convert2online]

I thought that when the interest rate goes down so does the minimum required payment so I will still pay it off in the 30 year mortgage timeframe.

Not necessarily, as you've experienced yourself.

Let me rephrase the minimum required repayment does go down but not automatically I have to request it manually to go down to the new minimum which I never have, I have been paying the same amount each month the whole time so yes it's better for me the loan will paid off quicker.

Yes, you're paying extra, and that reduces your loan amount. So you're paying off the loan faster than the original loan term. However, just because you're reducing the loan amount doesn't mean the extra payments are available for redraw, redraw being a specific loan feature that isn't available on all loans.

It does have the redraw facility already as the rep said however these 'extra' payments when the minimum required payments went down are not accessible to me as he tells me, they are not considered extra payments?

So that's the confusing thing to me, I guess it's how the loan product is setup?

Ask for a product switch to a product with redraw or better still an offset.

I have both already for this same loan thanks

Any solutions on how I can access this 'extra' money?

 

[alexlee]

Any solutions on how I can access this 'extra' money?

Refinance the loan. Noting that whatever 'extra' you get on the loan will be new borrowings, and deductibility of interest will depend on what you use it for.

Had you gone interest only and put the extra into the offset, you wouldn't have this potential tax problem.

If you can control your spending, an IO loan with offset is usually the most flexible.

 

[alexlee]

so yes it's better for me the loan will paid off quicker.

Why is it necessarily better to pay the loan down quicker again? You could use it for other investments instead, for example.

 

[convert2online]

well yes exactly what I want to use the money for something else but they're telling me I can't access it , 'better' was the wrong choice of word

Refinance the loan. Noting that whatever 'extra' you get on the loan will be new borrowings, and deductibility of interest will depend on what you use it for.

ok wouldn't this be the same as top up on the on existing loan?

Had you gone interest only and put the extra into the offset, you wouldn't have this potential tax problem.

If you can control your spending, an IO loan with offset is usually the most flexible.

So maybe I should switch to the IO or that what you mean by refinance?

 

[BMan]

refinance mean changing the loan either to another loan product or another lender
then you can get it valued and lets say its valued at 500k
you have a loan of loan 200k
then you have equity of 200k
meaning you can draw that 200k out

personally i think your best bet is to contact a mortgage broker on the forum here as they have a lot better understand on how to help you in your situation. and you seem to be having a little bit of trouble understanding these other options people are giving