What type of loan can I make extra repayments on?
Generally, the two types of home loans you will be permitted to make extra repayments on are:
- Variable rate loans
- Interest-only loans
Fixed Rate loans typically do not allow for extra repayments to be made. Even if they do, there may be strict limitations on the amount that can be made.
Therefore, it’s essential to check your loan policy to understand the limits and requirements for making extra repayments on your loan.
Should I make extra repayments monthly or as a lump sum?
Whether you should make extra repayments on your home loan monthly or as a lump sum depends on your financial situation and goals. Both approaches have their advantages:
Monthly extra repayments:
- making extra repayments monthly allows you to establish a regular habit of reducing your loan principal.
- smaller, regular payments may be more manageable within your monthly budget.
- reducing your principal balance monthly can lead to slightly more interest savings over time compared to an equivalent lump sum payment.
Lump sum extra repayments:
- Making a lump sum payment, such as a tax refund or bonus, can lead to significant immediate interest savings, as it reduces the principal balance instantly.
- Lump sum payments are well-suited for windfalls or large one-time cash infusions.
- If your goal is to pay off your loan faster, a lump sum payment may have a more immediate impact.
Will making extra repayments increase my credit score?
No, making extra repayments on your home loan will not have a direct impact on your credit score.
However, successfully repaying your loan will increase your credit score, and making extra repayments can help you do so sooner while reaping savings on interest.