Test two ways to apply a loan windfall
A lump sum paid to a home loan can be modelled in two distinct ways: keep the existing repayment and finish earlier, or reduce the repayment and keep the remaining term. This calculator starts with the current balance, rate and remaining term, then applies the lump sum immediately.
The result is a comparison of repayment mechanics, not an instruction to use cash in one place. Before making a payment, check redraw access, offset alternatives, fixed-rate restrictions, break costs, minimum repayment rules and whether keeping an emergency reserve is important for your circumstances.
How to read the results
Interest saved is compared with the original monthly amortisation schedule. When “keep repayment” is selected, new repayment repeats the baseline repayment and time saved shows fewer monthly payments. When “reduce repayment” is selected, the term stays the same and the new repayment is lower.
Repayment reduction is the difference between the original and same-term reduced-balance payments. The projected balance chart follows the selected strategy after the lump sum. It excludes fees, redraws, offset balances, rate changes and any lender-specific recalculation timing.
Worked example
Using the defaults and keeping repayments, a $25,000 lump sum reduces the $650,000 balance at 6.34% with 30 years remaining. The original repayment is $4,040 a month; the model saves $126,154 interest and finishes 37 months earlier.
If the same $25,000 were used to reduce repayments instead, the same-term repayment would be about $3,885, a reduction of about $155 a month, and modelled interest saving would be about $30,942.
Assumptions and limitations
- The lump sum is applied immediately before the revised schedule begins.
- The entered interest rate remains constant for the remaining term.
- Regular repayments are monthly and calculated using principal and interest amortisation.
- Keeping repayment uses the original calculated monthly payment.
- Fees, redraws, offsets, rate changes and lender processing dates are excluded.
Frequently asked questions
Why does keeping the repayment save more interest?
A higher payment against the reduced balance clears principal faster, leaving less balance on which future interest is calculated.
Can I pay the entire balance as a lump sum?
The input cannot exceed the current balance. Contract terms and any payout or break costs need to be checked with the lender.
Will my lender automatically reduce my repayment?
Not necessarily. Lenders have different rules for recalculating repayments, so confirm the treatment of additional payments, repayment dates and any request process directly with them.
This calculator and supporting information provide general estimates only. They do not take account of every product rule, tax consequence or personal circumstance and are not financial, tax, credit or legal advice.