Lump Sum Payments
When you make a lump sum payment into your home loan, you can potentially shave off your term loan by months if not years because the lump sum payment will go towards your outstanding home loan balance rather than interest. This lump sum payment is in addition to your regular scheduled repayments
A lump sum calculator is a great tool that can help you figure out how much interest you can save by making a lump sum payment into your home loan.
How to use the lump sum calculator?
In order to use a lump sum calculator, you will need certain details regarding your existing home loan and the lump sum payment you are looking to make.
- Loan amount
The loan amount refers to the amount of money you have borrowed or the outstanding loan balance
- Interest rate
The interest rate which can be either fixed or variable is the interest rate at which you repay the loan
- Loan Terms
This is referring to the amount of time you have to repay the loan with usual loan term ranging from 25 to 30 years
- Repayment frequency
Refers to how often you will be making your repayments and is typically either monthly, fortnightly or weekly.
- Lump sum amount
This is how much you wish to pay into your loan as a lump sum
- Starts after date
The start date you will be making your first lump sum payment
Results from the calculator will tell you your monthly repayment, how much time you will save and total interest saved.
The lump sum calculator is useful when you come into extra money during the year, like bonuses, a raise from employer or a tax refund and you want to see how much you save on your home loan.
What you need to consider when making a lump sum payment?
You need to always check with the lender whether you can make additional repayments to your home loan, especially with fixed rate home loans. Some fixed rate home loan may allow you to make additional repayment but your additional repayment is locked-in until the fixed term expires. This mean you will not have access to the lump sum payment you made. You may also incur a break cost fee if you make additional repayment to a fixed rate home loan which can offset the interest savings from your lump sum payment.
If your home loan is a variable rate product or your loan comes with an 100% offset account, then you can put your lump sum payment into the redraw facility or the offset account without any penalties. This will help reduce your interest calculated while giving you the flexibility to draw it out when you need it.