If you’ve got some extra cash lying around, maybe a bonus, inheritance, or savings you’re not using, you might be wondering if it’s worth throwing it at your home loan.
Short answer: It can be a great move.
Slightly longer answer: It depends.
Here’s what you should weigh up before making that call:
- The benefit
Paying off a chunk of your mortgage means you’ll pay less interest over time, and you’ll be on track to own your home debt free, sooner.
- Potential break costs
If your home loan is on a fixed rate, making a lump sum repayment might trigger break fees.
In a rising rate environment, those break costs are usually low (or nil) but it depends on when you fixed, your loan amount, and how long until your fixed rates expire. So check in with us or your lender before you make a move.
- The opportunity cost
When you use your cash to reduce your loan, that money is no longer available for anything else, whether that’s investing in shares, buying a car, or taking a long-overdue holiday.
Not necessarily a bad thing, just something to think about.
- Restructuring instead
If you like the idea of reducing interest but still want access to your cash, it might be worth looking into a Revolving Credit (or Offset product). This type of home loan works like a giant overdraft where you can pay into it (like a lump sum), and redraw the funds from it if needed. If you pay the balance down, you’re not charged interest on that portion but you retain access to it should you ever need it again (without asking the bank each time)
Of course, there are a few extra things to consider:
- Revolving credit limits
- Changing interest rates
- Your banks rules
But that’s where we come in. If you’re sitting on some spare cash and wondering what to do with it, let’s talk through the options and make sure it’s working hard for you, not just sitting around.
