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Mortgage Repayment Calculator Australia
When looking to buy a property one of the first things you need to work out is how much
a loan will cost you each month. There's no point looking at properties that you can't
afford to purchase because the monthly payments are too great for the budget to handle.
The Mortgage Repayment Calculator Australia will help you determine what the monthly repayments will
be for a loan over a given number of years at a given interest rate.
Mortgage
The mortgage is the loan you have borrowed. The loan is assumed to be an interest and capital
loan and not an interest only loan.
Years
Enter the number of years the loan will be paid off over. Typically this will be 30, but
loans of 25 years used to be common.
Frequency
The default payment frequency is for payments to be monthly. However if you are paid fortnightly
or weekly, then taking the payment out each pay period may make payments appear easier.
This shouldn't be confused with the tip where it is suggested people split their monthly amount
into two or four, for fortnightly or weekly payments to reduce the interest on their loan. The
reason this splitting technique works, is people are paying extra money into their loan
each year. There are 52 weeks in a year. Divide 52 by four and you get 13, not 12. Thus an extra
monthly payment is being paid using this approach.
However, simply asking for payments to be calculated to be weekly or fortnightly, when working
out payments has a minimal effect on the interest paid over the life of the loan.
Interest
The interest rate you enter is the rate at which you agree to at the time of taking out the loan.
The most common type of loan is a variable interest loan. The Mortgage Repayment Calculator Australia
works out your monthly repayments based on this initial interest rate. The variable interest rate
will change over time and often it may be necessary to adjust the monthly repayment amount.
Payment
Payment is the monthly payment amount you need to pay to service the loan.
Total Payments
Total Payments shows you how much you will pay over the life of the loan. Looks like a lot of money
doesn't it. The good thing is over time the purchasing power of money changes. In the late 60s people
were paying $5,000 to $10,000 for a home, but of course how much they earned was much less as well.
Total Interest
The Total Interest amount is also shown for those who are interested. If you pay more money off
the loan the amount of interest you'll pay is reduced. Again the amount of interest will look
like a lot of money, and it really is.
TIPS
The following are tips which helped me save money repaying a home loan. Some of the tips
I've heard of from others but not used myself.
- Get a loan which has a mortgage offset account. Then put all savings and income into
the mortgage offset account. This works well for a number of reasons. Any money in the
mortgage offset account reduces the principal you owe and the interest each month is
calculated on the reduced principal. The money in the mortgage offset account is available
when you need it. You can also put all your income into the mortgage offset account and
then pay bills, so whilst the money is in your account, you're reducing the interest on the loan.
- Pay an extra lump sum off the loan. If you come into money you can pay the lump sum off
the loan. Keep the payments the same and the length of the loan will can be significantly lessened
and thus the interest you pay significantly reduced. However if you have a mortgage offset
account preferably put the lump sum into that account. That way you have access to the money if
needed. Once money is paid into the actual loan it can be very difficult to get it out. I've even
read in some situations where there's some type of structural change with the bank the
over payments get rolled into the loan and people lose access to that money.
- Others suggest dividing the monthly payment amount into two and paying this amount fortnightly,
or four and paying this amount weekly. This works as you are paying extra off your loan repayments.
Not my favourite technique as you can't get easy access to extra money paid into the loan.
- If you've paid off extra money into a loan and are thus in advance with your payments,
some banks may allow you to skip one or more payments to reduce how much you are in advance.
This may be handy if you need the money for other things.
- If you're thinking the property may become an investment property paying off more of the loan
mean you get less tax deductions. If the money is in an offset account you can withdraw the money
and the interest charged on the loan becomes the full amount of the loan rather than the reduced
amount because of the mortgage offset amount. That's a better tax deduction for the investment
property. This applies if you need the money for personal purposes such as buying your private
home.
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Keep in mind if you decide to pay out the loan early there may be an early termination fee.
The fee is based on the loan amount and ignores the mortgage offset amount. What I did
is took the mortgage offset amount and paid this into the loan. Waited two months so
the loan was now the reduced amount. The early termination fee was drastically reduced.
This can happen in two situations. You've nearly finished paying the loan or, you wish to buy
your next home and have to pay out the existing loan.
- Pay off your debts with the highest interest first. Pay off credit cards and personal loans
before paying off a home loan. Credit cards and personal loans have much higher interest rates.
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Make sure you allow for interest rates to go up. There's nothing worse than the stress of finding
money if the market turns.
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If interest rates go up make sure your repayments go up otherwise you'll end up paying more
interest.
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If interest rates go down often the banks will keep your repayments the same. You pay more off
the loan which is good, but can't easily access the money. Decide if this is what you want.
You may prefer to get the repayment reduced and pay the money into the mortgage offset account.
This gives you access to the additional money whilst still reducing the interest paid. You'll
need to contact your finance institution to see if they can do this for you.
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Mortgage offset accounts work because you're reducing the amount of the loan the interest
is calculated on. If you had the money in an interest bearing account you'd get paid interest,
then you'd be taxed on the interest plus pay the medicare surcharge. Most people would
lose around a third of the interest. This means the mortgage offset interest saved amount is equivalent
to getting the money tax free. Put another way, if you're paying 5% interest on your mortgage
you'd have to be getting more than 7.5% interest on your money elsewhere to be better off. There's
no secure interest bearing accounts paying that much that I know of.
- Accountants often talk about the opportunity cost of money. If the money is tied up in the
loan you can't easily access it. If the money's in the mortgage offset account and you get a great
money making opportunity you can take advantage of the money. Don't get fooled into get rich
quick schemes or opportunities. Unfortunately I did not find an opportunity that worked that would
have meant the money was better invested elsewhere. If you're a good business person the money
invested in a viable business may get a better return than sitting in the mortgage offset account,
or tied up in the loan.
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Redraw facility. Banks often offer a redraw facility which can be free. There may be restrictions.
The benefit of the redraw over the mortgage offset account is it appears often the redraw is available
on more basic loans charging a lower interest rate.
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Banks package loans with addition options such as a mortgage offset account. This is often at a higher
interest rate. It may not sound like much but a 0.5% difference in interest rate can add 10s of thousands
of dollars to the total interest charged. Use the Mortgage Repayment Calculator with the different
interest rates to see the effect of the various loan offers.
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Disclaimer
The Mortgage Repayment Calculator Australia web app comes with no warranty expressed or implied.
The Mortgage Repayment Calculator Australia web app is only for informational purposes and is not guaranteed to be error free.
The information on this page is not intended to be advice.
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