All Topics / Finance / Lump Sum over Extra Repayment

Viewing 4 posts - 1 through 4 (of 4 total)
  • Profile photo of cmasoncmason
    Participant
    @cmason
    Join Date: 2009
    Post Count: 53
    March 17, 2010 - 3:07 am

    Hi
    Sorry this is more finance related than property investing. We currently pay $300 extra a month on our Principal and Interest PPOR home loan.

    This extra $300 is available sometimes up to 3 weeks before our monthly repayment is deducted. So the question is how much benefit in interest savings/loan duration savings would we get in making a lump sum repayment of $300 when it is available(lets say 3 weeks before monthly repayment) instead of just making the extra $300 in the monthly repayment.

    The extra repayment and lump sum repayment calculators don't help in this situation.

    Any help appreciated

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024
    March 17, 2010 - 5:50 am

    Depending on the lender interest should be calculated daily and debited monthly so the extra payment will have an immediate effect on the balance and the interest charged for the month.

    Of course if you sat the funds in a 100% offset account then the interest savings would be the same.

    Might even go 1 step further and think about a interest only loan and deposit everything into the offset account.

    Richard Taylor | Australia's leading private lender

    Profile photo of cmasoncmason
    Participant
    @cmason
    Join Date: 2009
    Post Count: 53
    March 17, 2010 - 11:25 pm

    Thanks Richard
    Just another question, always hear about paying fortnightly is a lot better than paying monthly. Reading up about it a fair few sites say the only benefit is if you divide your monthly repayment by 2 and pay that fortnightly effectively forcing you to make extra repayments(approximately an extra month's payment over the year).

    My question is does your fortnightly repayment immediately go on to the loan and therefore effecting interest straight away, or does the bank still make a monthly payment onto the loan and therefore interest is only effected at the point that monthly repayment is made.

    Thanks
    Chris

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    March 19, 2010 - 12:04 pm

    Most lenders calculate interest on a daily basis. So putting your funds into the loan 1 day early will save you 1 day interest, and then you will be saving interest on interest etc. Compounding effect. Paying fortnightly means you are paying the equiv of 13 months per year, but you are also paying the funds into the loan sooner thereby saving you a few weeks interest on that repayment  as well as the compounding effect.

    But I agree that an offset account would be more ideal. As soon as your pay hits the offset account it will be saving you interest.Every day counts

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

Viewing 4 posts - 1 through 4 (of 4 total)

You must be logged in to reply to this topic. If you don't have an account, you can register here.