How Long to Repay Calculator

How long will it take to repay my mortgage?

Whether it’s an investment property or your first home, buying a house is an exciting and nerve-racking time for many people.

More often than not, this exciting purchase comes with a mortgage and buyers should be aware of how long it may take to pay off a mortgage, and what they can do to pay it off sooner.

Luckily, you can use a mortgage calculator to help you get a clear understanding of your future payments may be and what you need to save. This article will be looking into how long it takes to repay your mortgage and handy tips to possibly shorten your repayment period and save you money.

What can you do to shorten the length of your loan?

There are many steps you can take to shorten the length of your loan. Some of these tricks are discussed below:

• Increase monthly repayment amount: Increasing your monthly payment amount will result in you paying off your loan at a faster rate, and ultimately reduce the length of your loan. This is especially effective if you maintain your increased repayments during times of low interest. Doing this will also help reduce interest costs and cut down your principle.

• Change to a fortnightly repayment: By changing from monthly to fortnightly repayments you can achieve a significant reduction in your interest costs during the life of the loan and reduce the amount of time you are under the strain of debt. Basically, in switching to fortnightly repayments, you are making an extra monthly repayment per year and this has a very tangible effect on the amount of time it will take to pay off your loan.

• Add a lump sum payment to the loan: If you find yourself with some extra cash, perhaps from tax refunds, dividends or work bonuses, it could be a great idea to put that towards a lump sum repayment off your loan. These are also referred to as extra repayments and can reduce the life of the loan and interest payable. We have attached an extra and lump sum payment calculator so you can see how much you could save.

• Consider using an offset account: An offset account is a transaction or savings account linked to your mortgage and a fantastic way to reduce the life of your loan and interest payable. Go and check out our offset account calculator to see the effects yourself.

Will interest rate changes impact how long it takes to repay my mortgage?

The two main factors that affect interest rates are changes in the lenders cost of funding and changes in the Reserve Bank's cash rate. It is important that borrowers have a clear understanding on how rate changes can impact the time and money it will take to repay their mortgage. This section will touch on how slight movements in interest rates can both benefit or hinder a borrowers success.

If borrowers maintain their repayment amounts when interest rates fall, this would result in additional repayments being made. Doing this allows the borrower to repay their loan faster while reducing the cost of borrowing.

Alternatively, if interest rates increase, borrowers will have increased repayment amounts to cover the additional interest. If these increased repayments eliminate the option of making additional payments, the tools for reducing the life of a loan will be significantly reduced or even eliminated.

To give you an idea of how a small change in interest rates can affect the cost of borrowing, a 25-year term loan of $350 000 the table below demonstates the change on an example interest rate of 3.70%:

Is the highest repayment frequency for a loan always ideal?

When deciding what loan repayment frequency is ideal for you, it is imperative that you consider the type of loan you have, what the loan is for and your personal financial situation. For example, if the loan is for an investment property, there may be advantages to paying off your primary residence loan first with any extra income to gain taxation benefits, before making a move to pay off your investment loan faster.

Monthly, fortnightly and weekly repayment frequencies have their pros and cons. The pros of monthly repayment frequencies are are that a monthly repayment can help you stick to your budget, as you will only be paying 12 repayments on your loan per year.

Alternatively, the pros of a weekly or fortnightly repayment schedule include saving on interest costs as you will be paying more off your loan (compared to monthly repayments) without even realising it. Weekly repayments allow you to make 52 repayments per year, and fortnightly repayments allow you to make 26 payments per year, which equals to 13 monthly repayments - so you get an extra repayment in each year without any extra work.

The most important thing to remember when choosing the repayment frequency is your financial capability. As the buyer, you should be sure you are not overextending your financial situation and only financing within what is comfortable for you.

What is the best loan term to pay off my mortgage the fastest?

The ideal term for your loan varies depending on the type of loan you get and your personal financial situation. When determining which loan term works best for you, it is important to take into consideration if your loan is principal and interest or interest-only and if the rate is a fixed interest rate, variable or partially-fixed. It is worth noting that some loan products will have a redraw facility so may be able to make extra payments when you have excess cash flow and if need be, it can be taken back to the minimum repayment when there is no excess cash flow.

A shorter loan term will require higher repayments but the borrower will save when it comes to the cost of interest. Alternatively, a longer term means more affordable repayments but it comes with an increase in the cost of interest.

Moreover, refinancing can be an effective way to reduce interest rates if a more competitive option becomes available. Find out if refinancing is right for you with our home loan refinancing calculators.

It is recommended that you use mortgage calculators and find a monthly repayment you are comfortable with. Borrowing less than your maximum borrowing power may mean you will have spare cashflow to make additional repayments to your loan, resulting in you paying off your loan faster.

Can I see the effect of a lump sum payment on the length of my loan?

The effect of lump sum payments is a reduction in principal owing on your loan, which will therefore reduce the interest being charged on your loan. Most lenders calculate interest on the balance owing on your loan on a daily basis, and charge it monthly. So, if you make a once off lump sum payment to reduce your principal owing, it will likely have an immediate effect of reducing your interest charged. This will ultimately result in you paying off your loan quicker than the original loan term.

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