Options for extra fixed rate loan repayment

Hi,

I'm wondering is there a quicker way to pay down a fixed rate mortgage?

I have already contributed the max $5k that ANZ allows but could I pay the entire 12 months up front to reduce interest in lieu of an offset? Or do repayments need to be within the monthly payment cycle?

Any ideas are appreciated.

2yr fixed P&I
No offset
ANZ

Deej

 

Get an offset!

 

If you planned on paying it down you shouldnt have fixed it all.

 

Exactly! Most banks have a limit on how much extra you can pay into a fixed loan. If you can't get an offset, maybe you can split the loan.

 

Was it explained to u up front that you could only make limited additional repayments? If you pay more you'll be hit with penalty fees. ANZs fixed rate is significantly lower than it's variable in part due to the limitations of the loan product.
Next time you want a fixed rate, go to a lender that allows additional repayments, or at least an offset.

 

You're out of options unless you want to break the fixed term, pay break fees, go back to variable rate - likely that the break fees will negate the benefit but hard to say until you know what they are.

 

What if you try a partial breakout? So not breaking full amount, just a portion of the amount (not sure if possible) ?

Also what are the breaking costs, whats the current rate and what would your anticipated rate + balance be? Some banks are offering lots of cashback rebates to move across.

So, it might be beneficial to breakout, pay loan down and then move remaining loan elsewhere for cashback. I would work this out on a duration of the current period on fixed.

I.e. if fixed ends in 2 years, calculate current cost of loan with interest vs compare the savings with paying down chunk of loan on a much lower rate on outstanding amount. You can send me a direct message if you want me to play around with the figures

 

The product is perfect for my needs based on low rate and 2yr period. I keep all surplus funds in high interest savings account, shares or my business.

I set it up with split already to maximise the $5k extra/yr to $10k now.

My business has picked up and has surplus funds so was curious if there was a way to minimise the interest such as prepaying the loan repayments earlier and I'm trying to determine what early is defined as. Monthly period or yearly period?

 

Extra repayments are capped on a per annum basis (yearly)

 

Clearly it's not perfect for your needs because you wouldn't be asking this question if it was. What you might have done differently is split the loan into variable and fixed components so you could make extra repayments on the variable portion. Lending is not just about getting the cheapest rate, it's very much about planning for the future and structuring loans to accommodate a variety of circumstances.

Also keep in mind that your business may not be able to make extra repayments directly without creating all sorts of tax issues. This depends on how your business is structured. It would be wise to speak to your accountant before doing anything.

Once you've fixed, you're committing to several restrictions including limited extra repayments. You can make extra repayments on the ANZ fixed product, but there may be penalties involved and it's impossible to predict what they might be without asking the bank. There's no way around this.

 

I'm hearing more of these questions from people who jumped into shorter term fixed rates. You cant go fixed then complain you cant pay it down - thats not how the product works. I would imagine any broker asked this question would suggest a split loan so part is variable and part fixed so that sufficient variable balance exists to accomodate the extra repayments

ANZ T&C....They dont indicate what the permitted threshold is. It may be a % of the loan amount ? Is it $5K?. I had a WBC loan that allowed $30K...Not per year but a maximum total
Many lenders allow extra as they once paid a rate benefit to the borrower if rates went up. They stopped that and ASIC didnt think it fair so they all allow a set amount without penalty which varies by lender

https://www.anz.com.au/content/dam/...-rate-loans-what-happens-if-you-pay-early.pdf

And extra repayments arent always a redraw so once you make a repayment its theirs to keep.

 

Thanks for reply. My reasoning was I didn't want to pay 50% extra interest on the variable if I took it out of offset (3.2% vs 2.19%) as I thought it was likely I would keep excess cash in the biz rather than take it out for offset. Then covid created a boost to the biz so I'm exploring options.

I set up a split with 2 fixed so I could pay extra $10k each yr already as an option. Didn't realise I could have a 3rd split as a small variable + offset so that's good to know.

Good tip about moving money around. I think a lot of ppl get caught out not setting up 7a and treating company money like personal account. Personally I find them a hassle and prefer to keep it clean with dividends and salary.

My question still stands though. Does the bank consider a payment cycle monthly or annual for advanced payments? i.e. if I paid each year up front would they penalise me for not paying it monthly?

 

Mentioned this in 1st post. ANZ is $5k limit/yr so I set up 2 splits.

I'm not trying to repay extra, I'm seeing if I can front load my yearly repayment rather than pay monthly.

If can't be done, that's fine I'll just carry on and look at a property to buy etc

 

My understanding is the limit is $5k per year, probably measured per calendar year. I haven't verified this though, it would be best to call the ANZ and get it from them directly.

Also consider that if your fixed rates are lower than the current variable, there may actually not be any penalties for breaking the fixed rate at the moment. Perhaps you could ask them about this, break the fixed rate and then restructure to something more appropriate?

 

Thanks Peter, will chase them up