Will paying a lump sum off my loan reduce my mortgage repayments?

No – by paying a lump sum off your loan, you’ll reduce the principal you owe, but your repayments won’t decrease. If you do pay off a lump sum, or make any extra loan repayments, use Savvy’s mortgage repayment calculator to work out how much interest you’ll save over the life of your loan.

Can I pay off my loan with a lump sum but keep my mortgage open for the future?

Yes – it’s possible to pay off your existing loan but keep your mortgage open to save you having to refinance in the future. This process is known as ‘porting’ your loan. This can be a useful feature if you’re selling your existing home and buying another, but don’t want to have to go through the whole application process to refinance for a new mortgage. However, you may be restricted in terms of the choice of property (your lender may require it to be of equal or greater value to your current property) and charged a fee to do so.

I have a split loan. Should I make lump sum repayments to the fixed or variable portion?

You may find there are annual limits to the amount you’re permitted to pay off your fixed loan, so it makes more sense to pay off a portion of your variable rate loan if you are lucky enough to receive a financial windfall. Ask your lender if you do have repayment limits on your fixed rate loan.

Can I add a redraw function to my loan after I've made a lump sum repayment?

Yes – however, the vast majority of variable rate home loans come with redraw facilities built-in regardless, so it’s not generally an issue you’ll have to worry about.

Is it better to use an offset account or a redraw account for my lump sum windfall?

That will depend on the terms of your redraw account. Some redraw accounts have limits on the number of withdrawals you’re permitted to make per month or per year, or they have a dollar cap amount (often $10,000). An offset account generally offers far greater flexibility, so you’re likely to find this to be the better option in most cases.

If I pay off my loan with my lump sum, will I have to pay early exit fees?

If you’re currently paying a fixed term loan, you may have to pay early exit fees to get out of your fixed loan commitment. Ask your lender how much your early exit fees will amount to, and then work out if you are better off waiting until your fixed rate has expired before closing your loan. You won’t have to worry about early exit fees for variable rate home loans, however.

Can I use the existing equity in my home loan instead of a lump sum?

Yes, you can use the existing equity in your existing home loan as security or as a deposit on a second investment property . This is a very common way to finance an investment property and to grow your wealth.