All Topics / Finance / Reducing Minimum Repayment

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  • Profile photo of CLoSeRCLoSeR
    Participant
    @closer
    Join Date: 2009
    Post Count: 7
    May 11, 2011 - 9:50 am

    Hi All,

    I have a question for all the brokers out there. What happens if I purchase a home for say $700k and after the 1st or 2nd year I win lotto or receive inheritance to the amount of say $400k. If I then choose to commit this $400k to my loan and reduce the debt to $300k I will be paying less interest over the term but the monthly repayment will remain the same.

    If I want to negotiate a lower minimum repayment on the amount owing is it difficult with most banks? I could see this being handy if say my wife wanted to quit work to raise children.

    This same situation could occur if you have a current PPOR valued at 400k, and get a new loan to upgrade. Then paydown the loan when you sell your old place. Is the answer the same in this situation, and do the banks offer anything special to people who want to upgrade in this fashion.

    Cheers,

    CLoSeR

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024
    May 11, 2011 - 1:42 pm

    Closer

    Normally if the $400K is treated as a capital reduction you would have the choice of reducing the pricipal amount and keeping the monhtly repayments the same or reducing the monthly repayment.

    Depending on the lender not a big deal.

    Course whether you would pay down the pricipal is a different matter my preference would be pop the funds in an offset account and give youself some options.

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of Mick CMick C
    Participant
    @shape
    Join Date: 2010
    Post Count: 1,099
    May 14, 2011 - 2:52 pm

    Hi Closer ( sounds like your “close to wining lotto :) )

    As Richard mention, any lotto wins, tax return, bonus- Place them all into an offset account; it provide a reduce interest repayment and flexibility

    In regards to the monthly repayment;

    1. If you add this to your homeloan direct ( as a redraw) then your monthly repayment will automatically reduce after a short period..the bank will send you a letter to confirm your new “on target commitment”

    2. If you add it too the offset account, monthly repayment is the same…but the “interest ” part you pay would be much less…so in effect your paying off a lot more “principle”

    Note: some bank does NOT allow you to do a full redraw or might have some limitation, hence why a offset account is a lot more Superior for large sum of money,

    Regards
    Michael

    Mick C | Shape Home Loans
    http://www.shapehomeloans.com.au/
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Viewing 3 posts - 1 through 3 (of 3 total)

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