Lowering repayments

[zyre]

Hi All,

About to dive into all of this and I would like ot know if extra repayments lower your required scheduled monthly loan repayments?

In the calculators ive been looking at online, they reduce the years that you have the loan for, but i am wondering whether the actual scheduled repayments are lowered by paying extra.

For example (rough figures here), i take out a loan of 350k and am able to make extra repayments $1500 per month on top of the regular scheduled repayments of $2300 a month.

If i continue to pay this extra $1500 per month, after say a year will this lower the $2300 that is required as a scheduled repayment... and by how much? If not, could someone explain to me how it works?

Sorry if its a stupid question, but I cannot find an asnwer to this anywhere...

thanks alot!

 

[schweedy]

I'm no expert, but the only thing that would reduce your loan repayments would be a drop in interest rates....unless you refinanced.

You would be better to put that extra 1500 per month into a 100% offset account against your loan, or at least into a redraw option, so you can access it at a later date, or skimm off the top off if your tight on repayments late down the line.
Hope that helps some.....I'm sure the real experts will be along shortly

 

[tobe]

The only way extra repayments means a lower minimum repayment for the next payment is if you are with certain banks, with an interest only offset account.

 

[JandJ]

Doesn't lower the minimum (scheduled) payment for us.
We have paid over and above the minimum since settlement and in addition have made lump sum payments.
Min payts have still increased in line with rate increases over the past 6 mths. Not sure how the calculation is applied.

 

[tobe]

Or a line of credit. Otherwise, all P&I loans, and a lot of lenders I/O loans with offset do not change the repayments when extra repayments are made.

What product do you have J&J? Which lender are you with?

 

[Peter_Tersteeg]

On a principal and interest loan, you're contracted to make a minimum monthly repayment. Whilst making an extra repayment (or many) reduces the amount of money you owe, it only means you'll own the house sooner. It doesn't reduce the minimum payment.

Since the principal amount owning is smaller after an extra repayment, the actual interest component of the minimum payment reduces and the principal component increases.

An offset account won't change any of this. It is a different story if the repayments are interest only. In most cases this does lower the monthly repayment.

 

[marg4000]

Once you have paid a fair bit extra off the loan it is usually possible to renegotiate the monthly payment. We have done this in the past.
Marg

 

[zyre]

thanks alot guys, this is how i thought it would be in that you pay the same amount just the time that you have the loan decreases.

good to know about the renegotiaion too marg, i have never heard that before.

cheers guys!

just as a side note, this is for a P&I loan that will be our PPOR for a long time to come, and we have verbal acceptance of the offer today so hopefully everything works out for us... busy busy.

 

[marg4000]

We had our PPOR loan when things were far less flexible than they are these days. Offset accounts had not been invented.

I would suggest that you arrange for a 100% offset account with your mortgage. Pay the increased amount each month into the offset account, and have the PPOR repayment taken out of the offset account. In time the offset account will build up a cash buffer.

This has the double advantage of decreasing the amount of interest payable, but at the same time giving you an account you can draw on if absolutely necessary. Try really hard not to touch it, but keep it for big-ticket items or an emergency.
Marg

 

[Rolf Latham]

Doesn't lower the minimum (scheduled) payment for us.
We have paid over and above the minimum since settlement and in addition have made lump sum payments.
Min payts have still increased in line with rate increases over the past 6 mths. Not sure how the calculation is applied.

Hi JandJ

Smells Like Stg Bank or Heritage Building Society ?

Or a PI loan with any other lender ?

ta
rolf

 

[JandJ]

Hi Rolf
ANZ Breakfree Pkg. PI

The actual interest charged is dropping of course (after taking into a/c the balance in the offset and additional payments).

Can only assume the minimum (scheduled) payment is calculated against either the original loan balance and the new rate, or the current loan balance at new rate.

Regards

 

[davo6253]

Your loan repayment would be based on the original loan amount and time frame.

If you want to reduce your repayment as marg said you can renegiotiate your payments however this will mean that all the extra money you have put into the loan is no longer accessible on redraw.

 

[Rolf Latham]

Hi Rolf
ANZ Breakfree Pkg. PI

The actual interest charged is dropping of course (after taking into a/c the balance in the offset and additional payments).

Can only assume the minimum (scheduled) payment is calculated against either the original loan balance and the new rate, or the current loan balance at new rate.

Regards

contracted repayment based on initial term and current rate.

Can change to IO usually, but will need a full new loan app with ANZ

ta
rolf