This Australian extra repayment mortgage calculator helps you visualize the powerful impact of adding extra money to your regular home loan payments. See how much you can save in interest and how quickly you can pay off your loan.
Mortgage Calculator with Extra Repayments (Australia)
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Mortgage Calculator with Extra Repayments Formula
1. Standard Periodic Repayment (P&I) Formula:
$$M = P \left[ \frac{i(1 + i)^n}{(1 + i)^n – 1} \right]$$
2. New Term Calculation (with Extra Payment):
The new term ($n’$) is solved iteratively or algebraically by substituting the new effective periodic payment ($M’ = M + E$) into the present value of an annuity formula, where $P$ is known, $M’$ is known, and $n’$ is the unknown variable:
$$P = \frac{M’}{i} \left[ 1 – (1+i)^{-n’} \right]$$
Where: P = Principal, i = Periodic Interest Rate ($r/k$), n = Total Payments (periods), M = Repayment, E = Extra Payment, M’ = New Total Payment.
Formula Sources: MoneySmart (Australian Govt), Reserve Bank of Australia (RBA)
Variables Explained
The following variables are used in the calculation, corresponding to the input fields above:
- Initial Loan Amount (Principal): The total amount borrowed from the lender in Australian Dollars (AUD).
- Annual Interest Rate: The annual rate of interest, expressed as a percentage, applied to the outstanding loan balance.
- Loan Term (Years): The total duration (in years) over which the loan is scheduled to be repaid under normal conditions (e.g., 30 years).
- Repayment Frequency: How often you make a scheduled payment (Monthly, Fortnightly, or Weekly).
- Extra Repayment Amount: The additional principal amount you commit to paying on top of your standard scheduled repayment, applied for the entire remaining loan term.
Related Financial Tools and Calculators
Explore other calculators to manage your home loan and finances:
- Lump Sum Repayment Calculator
- Mortgage Stamp Duty Calculator (NSW)
- Home Loan Deposit Savings Forecaster
- Refinancing Cost-Benefit Analysis Tool
What is an Extra Repayment Mortgage Calculator?
An Extra Repayment Mortgage Calculator is a crucial tool for Australian homeowners seeking to accelerate their path to debt freedom. It models a standard principal and interest (P&I) home loan and then projects how much time and money is saved by consistently adding a fixed extra amount to each scheduled repayment. This calculator is particularly relevant in the Australian market due to the prevalence of variable rate loans and flexible repayment options (like weekly/fortnightly payments).
The core principle is simple: every dollar of extra repayment goes directly towards reducing the principal balance. Since interest is calculated daily on the outstanding principal, a lower balance means less interest accrues over time. This compounding effect drastically shortens the loan term and results in significant total interest savings, often amounting to tens of thousands of dollars over the life of the loan.
How to Calculate Extra Repayments Impact (Example)
Here is a step-by-step example of how the calculation works:
- Determine Standard Repayment: First, calculate the regular P&I repayment (M) based on the Initial Loan Amount, Annual Rate, and Term. This establishes the baseline for total interest and term (e.g., 30 years).
- Calculate New Total Payment: Add the ‘Extra Repayment Amount’ (E) to the standard repayment (M) to get the new effective total payment ($M’$). This is the amount the borrower pays each period.
- Solve for New Term: Use the amortization formula, setting the new total payment ($M’$) as the known periodic payment and solving for the new number of periods ($n’$). This requires advanced financial calculation, often involving logarithms or iterative solving.
- Determine Interest Savings: Multiply the original payment (M) by the original term (n) and subtract the Principal to get the Original Total Interest. Do the same with the new payment ($M’$) and new term ($n’$) to get the New Total Interest. The difference is the Interest Saved.
- Calculate Term Reduction: Convert the new number of periods ($n’$) back into years and months, and compare it to the original loan term to find the total time saved.
Frequently Asked Questions (FAQ)
What is the benefit of making fortnightly vs. monthly payments in Australia?
In Australia, paying fortnightly often results in one extra month’s worth of payments being made each year. While monthly is 12 payments, fortnightly is 26 payments (or 13 “monthly equivalents” per year). This is a built-in form of extra repayment that significantly reduces your loan term and interest.
Does the extra repayment go entirely toward the principal?
Yes. Once your regular interest liability is covered by the standard portion of your payment, any additional amount is automatically applied to reduce the outstanding principal balance, accelerating the pay-off time.
Can I stop making extra repayments if my circumstances change?
For most Australian home loans, especially those with an offset account or redraw facility, extra repayments are optional and flexible. You can typically increase, decrease, or stop them at any time without penalty, though you should confirm with your specific lender.
Are there tax implications for extra repayments?
No. Extra repayments on a primary residence home loan are generally not tax-deductible in Australia. The benefit is purely financial, in the form of reduced interest expense and faster loan repayment.