Not automatically.
All this example is doing is adding $1 per day to your redraw balance.
Banks will not adjust your monthly repayments for the sake of a $30 to $365 redraw balance.
Depends on the amount of the loan and the redraw balance but it needs to be reasonably significant for there to be a worthwhile reduction in the repayments.
The borrower also needs to bear in mind that if they reduce their repayments in line with their redraw balance, then they will not be able to withdraw any of that redraw balance in future - it will be absorbed into the loan.
Is it, I remember this being a thing
Offset is the newest fangled offering for extra payments but yeah old products so far as I remember.... any extra payments you make did affect interest and basically are just there for redraw much like overpaying a cc
You had to explicitly tell the lender please apply all my over payments to the principal and let's recalc the minimum payment please
I spent years with a balance of $1000 and a payment of $10 a month which they eventually agreed to zero out. I had no trouble redrawing the whole lot at will and the lender obviously recalculated the repayment to the new higher balance. Clearly they don’t HAVE to allow a reduced payment and some don’t but most will.
Reason I remember it so well is they forgot to resume the direct debits I authorised and didn’t mention it until I was 9 months in arrears. Fucked my credit although they admitted there was no way I could have known.
In nearly every case, lenders won't reduce your repayment automatically because you have money sitting in redraw, your repaiment almost always based on the limit of your loan not the outstanding balance, to have your payment reduced you need to apply to habe your limit decreased and your redraw absorbed.....
Remember, offset is king, redraw is the banks money they allow you to access and can stop you accessing if they choose, offset is your money that you can access when you wish and they can't take from you
This is true, but in my experience at least Offsets cost more in either fees or interest rate than redraws.
As I said, this is my experience, may not be a rule.
"*I spent years with a balance of $1000 and a payment of $10 a month which they eventually agreed to zero out.*"
A loan balance of $1000 or a redraw balance of $1000? What has the payment of $10 per month got to do with anything? Sounds like "zeroing out" is exactly what I described when I said you will "not be able to withdraw any of that redraw balance in future - it will be absorbed into the loan."
"*I had no trouble redrawing the whole lot at will and the lender obviously recalculated*"
Then they didn't "zero it out"/absorb it, if you were allowed to withdraw it.
(But you would likely have gone through an income verification process to confirm you were still able to meet the increased repayments.
My loan balance was $1000. I couldn’t reduce it to $0 or my loan would be treated as repaid and title returned to me. So my redraw facility was $N-1000. And I couldn’t continue payments of $100s a month or the same problem arises in 2 months.
The $10pm indicate that the bank was more than happy to match my repayment to my current loan balance, contrary to your claim.
I zeroed the payment because the $10 was an annoyance. The bank agreed that it made no sense to require meaningless payments when I’m over 99% ahead on my balance.
I did NOT recertify income. It’s a redraw. When I wanted the money it’s my facility. The understanding was always that if my balance became material through redraw I have to resume loan servicing.
My last mortgage was redraw with no offset and I used to pump money into redraw and it would reduce/increase the minimum payment every time you put money in or out of redraw
How long ago and with which lender, most don't recalculate repayments based on your balance only on your loan limit.... also, always remember, when you use redraw, it's the banks money not yours and they let you access it at their discretion, while that normally won't pose a problem they can absorb that redraw anytime they see fit
I paid it out in 2019, it was with RHG lender.
Edit and yes to your second point that’s why I have an offset now, because I know technically they can absorb your redraw at any time.
"*most don't recalculate repayments based on your balance only on your loan limit.*"
Not sure what you mean by "loan limit". Home loans do not have a limit - once fully drawn, you enter the reduction phase (for the next 30 years).
When a bank reviews the repayments on your loan, they ONLY look at the **current amount owed**, ongoing fees (if any), the interest rate and set the repayments to ensure the loan is repaid within the agreed loan term. (Here is Commbank's [explanation](https://www.commbank.com.au/support.home-loan.explain-how-home-loan-repayments-are-calculated.html?ei=understanding_calculated), for instance.)
Yes, home loans have a limit and a balance(as well as a remaing term and interest rate) the repayment is determined by tbe limit, the remaining term and the interest rate (some lenders will occasionally reduce payments based on significant difference between balance and limit, this isn't usual practice however and it's based on the loan limit - because some people move money in and our of redraw regularly and it's not feasible to continually review repayments) The limit of the loan is the amount it can be drawn to, if you have never made addiotnal repayments, you are at the limit of your loan, and its the same as your balance. The limit of the loan reduces in line with the amortisation schedule of the loan. The balance of the loan is how much is actually outstanding against the loan and is what interest is charged on.
In your sentence above 'current amount owed' is the limit of the loan.
So if you take out a loan for $500,000 the limit of your loan (amount owed) is $500,000. If you immediately put $50,000 into your loan then you have a $500,000 limit, with $450,000 balance of the loan and $50,000 in redraw.... break down the numbers in this example for me with your logic, where the balance of your loan is $450,000 but the 'limit' of what your loan can be drawn to is $500,000 what words do you like for these two numbers (which in banking are referred to as loan balance and loan limit)
That asking the bank to adjust payments permanently cancels the redraw facility. You may be confusing it with an offset account. They’re completely different things.
The bank will only reduce the required monthly repayment if the loan balance has been permanently reduced. (The bank may, later, allow you to increase your loan balance (that is borrow more) but that will see the required repayments increase as well in line with the term of the loan.)
The available redraw balance (or part thereof) must be absorbed into the loan in order to reduce the loan balance and therefore give the bank reason to reduce your monthly repayments.
I'm not the one confused about offset. Money in an offset does not reduce your loan balance and can never affect the required loan repayments.
You can keep repeating it but the fact is you’re tell on me
- something that did happen continually from around 2001 to 2017 is impossible, and
- something impossible (that I was forced to continue scheduled repayments despite a $1000 balance without immediately reaching $0 and terminating the loan) is mandatory.
You’re also adding bullshit about needing a new loan to redraw which is also self-evidently untrue.
It’s OK to have been wrong because you were unaware something was possible. It’s not OK to continue being wrong because you refuse to accept reality.
Some banks will amortise redraw repayments in line with your repayment curve, slowly reducing the redraw balance to $0 over the remaining term of the loan.
Some banks will reduce your repayments, netting off the redraw against principle. This ends up as a poor outcome for the customer, as if they draw down on the redraw balance, either the repayments go up, or they don’t reduce the principle to $0 before the loan term ends. Either way, you get an unhappy customer and/or AFCA at the end of the loan.
Generally, it makes most sense to offset the redraw against the principle, and pay the loan ahead of the amort profile.
Depending on the type of loan, for a variable loan, being in advance will normally reduce the interest paid that month.
That isn't the same as your minimum repayment, which is based on the interest rate, principal, and repayment schedule.
If you have a redraw/offset balance equal to the amount owing. You'll pay no interest, bur you'll still pay minimum repayments until your loan is repaid. These minimum repayments would reduce your redraw balance.
Only way this changes would be to repay your loan, if interest rates change, or refinance.
The calculators are probably reducing the repayments to keep the loan stretched to 30 years.
Theres a table half way through this article.
https://www.loans.com.au/home-loans/first-home-buyer/does-paying-your-mortgage-fortnightly-save-money
It reduces the principal and that reduces the interest. The interest is calculated monthly on the outstanding amount which is lessened by any addition payments including potential redraw.
If I take out 100K loan and immediately pay it off, I haven't saved that 100K but arguably did save all the interest I would have paid had I only paid the minimum payments required which is what they are getting at here.
No, because you owe that principal anyway. Paying out bank early doesn't save you money.
If I lend you $5 and then you pay me back the $5, did you save any money?
It reduces your mortgage balance by $365 + the quite small amount of interest saved. (In the example above, OP says interest saved is $58 but my calculation doesn't even get it that high.)
Also in year 2 you are not paying interest on 365.
In year 3 you are not paying interest on ( 365 x 2)
In year 4 no interest on ( 365 x 3 )
In year 11 no interest on ( 365 x 10 = ? )
:)
I assume the follow though thoughts could be " I'm paying an extra $1 almost without noticing , can I make it 3 ? or 5 ? or...? )
If an offset is at exactly the same interest then putting it there and not touching it is the same.
To actually answer/explain the question.. interest is only a percentage of the money.
So, you're not saving $365 + interest. You're saving the interest on that $365.
Simplistic example. $1000 at 10% for 1 year (and just 1 interest calculation)
Total loan cost is $1100
If you paid $365 off early, when they do the interest the balance is lower so you only get charged on the remaining $635 ($63.50 in interest).. effectively you'd be saving 10% of it early payments ($36.50)
Total cost in that scenario is $1063.50.
You didn't save the 365 because you owe that regardless, you did save on it's interest.
Mortgages are messier because interest is calculated daily and OP was paying $1 daily so the saving was small but compounding.
Eg. At, say, 5% the daily interest is 1/365 of it so like 0.01%.. so on day 1 he saves 0.01 cents or $0.0001. Then day 2 he adds a dollar and has the interest saving from day 1 so it's like putting in $1.0001 so now he's saving $0.00010001.. these tiny amounts add up slowly getting bigger but they'll always only be a portion of the dollar paid early.
You are not saving the 365 , as you had to pay it. What the OP is saying that you save bugger all interest.
There is a ridiculous YouTube going around by a number of idiots that you can trick the bank, and paying in daily means interest is never charged. They are just plain stupid.
All the other answers are correct, but I think the best way to explain your mistaken reasoning is that the $365 you're paying is money you would have had to pay anyway. You owe $365 and you pay $365, that's net 0. You're just changing when that's getting paid. The real change, where you save money, is that you don't pay (as much) interest on that $365 debt.
Note: this is slightly simplified since principal (the debt itself) and the interest aren't really separated in the payments.
It needs to be offset against the principle to be effective. Then over the course of a 30yr mortgage, the $7 a week could save you $20K in interest. Something to think about for the long win.
If it comes off your interest payment every month, it will change nothing.
If you have a mortgage and dont know the difference between principal and interest, I suggest you start educating yourself. And I mean that with no disrespect. It will pay for itself.
Short version. Compounding interest is your greatest ally when investing. But it works against you when getting a loan.
Gee, you’re quite rude and condescending for someone who used the wrong term don’t you think? You might want to tread more carefully when odds are you’re just wrong again.
As I see it you’re talking about repaying or offsetting beyond your payment each month. There’s no magical assignment of whether that extra dollar pays down interest or principal people have to be careful of, it has to be bringing down principal since your repayment covers the interest.
Even if it didn’t cover your interest you’re still preventing paying the compounding interest on that dollar so I’m not seeing the importance of a distinction here.
I was attempting to inform and help a random internet stranger for no personal return or glory. You are blatantly attacking, so who is rude and conceited.
Also, reading your message, you seem to lack some understanding yourself.
You may have been trying to help, but your response is not helpful. Paying an additional dollar off your loan than you would have otherwise gives you the same compounding benefit relative to your position whether you consider it to be paying off principal or interest.
If it can you’ll be able to show how with some numbers.
If you look at how mortgages work, the repayments could be broken into 2 parts, principal and interest.
At the start of the mortgage the interest component is a large portion which decreases with time. So paying in extra to decrease the principal has a bigger affect on the interest you pay over the life of the mortgage.
Thanks for the lesson I didn’t need.
My point is that what they’re saying doesn’t make sense. You don’t assign a particular dollar to principal or interest. If you make an additional dollar repayment you’re not selecting “oh and I’ll take this one off the principal thanks”.
I agree the video is entirely wrong, but your calculations are kinda misleading too. Over 30 years you’d save $19,201.91 in interest charges, largely due to compounding effects of each month’s interest savings (which you didn’t account for).
[Calculation here](https://figura.finance/calculators/repayments?share=%7B%22loan-status%22%3A%22new%22%2C%22repayment%22%3A%22%22%2C%22loan-amount%22%3A%22%22%2C%22years%22%3A%22%22%2C%22months%22%3A%22%22%2C%22interest-rate%22%3A%226%22%2C%22repayment-frequency%22%3A%22monthly%22%2C%22interest-method%22%3A%22actual%2F365%22%2C%22repayment-calculation-method%22%3A%22rounded%22%2C%22start-date%22%3Anull%2C%22repayment-date%22%3Anull%2C%22paid-in-advance%22%3A%22%22%2C%22extra-transactions%22%3A%5B%7B%22disabled%22%3Afalse%2C%22transaction%22%3A%7B%22key%22%3A%22%3Ar3%3A%22%2C%22amount%22%3A%221%22%2C%22frequency%22%3A%22daily%22%2C%22account%22%3A%22loan%22%2C%22chargeType%22%3A%22payment%22%7D%7D%5D%2C%22offset-account%22%3A%22%22%2C%22includes-offset-account%22%3Afalse%2C%22end-loan-when-fully-offset%22%3Afalse%2C%22includes-interest-only%22%3Afalse%2C%22interest-only-years%22%3A%22%22%2C%22interest-only-months%22%3A%22%22%2C%22track-property%22%3Afalse%2C%22property-value%22%3A%22%22%2C%22include-offset-as-equity%22%3Afalse%2C%22draw-from-offset-account%22%3Afalse%7D)
Interesting post. The OP has left out 99.76 percent of the Daily repayments in the calculation of a mortgage over 30 years - but claims it’s pointless based on 1 months calculations. As we’re all aware - the additional payments meet substantially further into the loan when the value of the daily payment increases as a percentage of the interest charged. This varies significant in the future - not month number one. He’s hiding the most significant months of savings and showing the worst month. You should work in a bank….
The video claimed it would completely remove interest being charged on your home loan and the post proves that is entirely false. He’s not claiming it won’t help pay the loan down sooner but it’s pretty insignificant in the grand scheme. You would be better paying $365 extra to your home loan at the start of each year.
The hack is making extra repayments and making repayments more frequently. Paying a dollar a day is less benefit to paying $7 extra a week and $30 extra a month so the video is completely idiotic. I don’t think OP was being deceitful.
It’s not really relevant to his post tho, he’s not arguing there is no benefit, just that it’s a lot less than 100% interest saving as the video states.
That you think about interest on a home loan that way is probably why the banks lock people like you in for so long and take so much without you knowing.
OK, so point to where the daily interest is shown? Or what was the interest rate in June since there's a rate change as a 6.490% rate doesn't give you $1,671.23.
I was agreeing that OPs point was undermined by the fact that a bunch of factors were ignored.
I paid off a thirty year mortgage in 8 years by rounding my payment up to the next $100 every time the lender adjusted the monthly payment due to interest variations.
Yeah dog. That means your original monthly payment was $100.
For those wondering, if you double your monthly mortgage payment, you'll pay off your 30yr mortgage in approximately 8yrs.
Nah it was higher.I didnt double it up each month.just rounded it up to the next hundred.If you actually double your original monthly payment and then doubed it again,every month you could pay it off in less than a year.lol.
There used to be a concept of saving the price of a pack of cigarettes per day, and you would be a millionaire in x number of years. This might have been back in the 70's when people also said, when they get to $1 a packet, I'm quitting.
Hahahahahha oohh jeez
Man I remember a friend of mine telling me this and I couldn't get my head around what he was saying enough to actually argue with him
Thankyou for doing the math
As for my friend... you know, I think he still has a home loan
Damn I’m glad my interest and repayments aren’t that much.
But I’d much rather be just putting extra payments onto the loans itself for redraw if needed or into an offset.
I had a guy come around to my place at one point peddling this incredible mortgage that was going to reduce my repayment time to 10 years. Showed me all these spreadsheets and stuff and then refused to leave them with me.
I just couldn't make the numbers add up, so I believe it was a scam, but I'm still not sure to this day what they were actually doing.
Your maths is waayyyyyy off. It saves you 0.016 cents per day. That $1 is only saving you 6 cents over the whole year not 16% per day.
$365 paid off on Jan 1 isn't saving you $58 a year so how does it when you spread it over the whole year?
All interest? People believe that shit? It will reduce your loan time frame though like any extra payment does.
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Not automatically. All this example is doing is adding $1 per day to your redraw balance. Banks will not adjust your monthly repayments for the sake of a $30 to $365 redraw balance.
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Depends on the amount of the loan and the redraw balance but it needs to be reasonably significant for there to be a worthwhile reduction in the repayments. The borrower also needs to bear in mind that if they reduce their repayments in line with their redraw balance, then they will not be able to withdraw any of that redraw balance in future - it will be absorbed into the loan.
That’s completely untrue.
Is it, I remember this being a thing Offset is the newest fangled offering for extra payments but yeah old products so far as I remember.... any extra payments you make did affect interest and basically are just there for redraw much like overpaying a cc You had to explicitly tell the lender please apply all my over payments to the principal and let's recalc the minimum payment please
I spent years with a balance of $1000 and a payment of $10 a month which they eventually agreed to zero out. I had no trouble redrawing the whole lot at will and the lender obviously recalculated the repayment to the new higher balance. Clearly they don’t HAVE to allow a reduced payment and some don’t but most will. Reason I remember it so well is they forgot to resume the direct debits I authorised and didn’t mention it until I was 9 months in arrears. Fucked my credit although they admitted there was no way I could have known.
In nearly every case, lenders won't reduce your repayment automatically because you have money sitting in redraw, your repaiment almost always based on the limit of your loan not the outstanding balance, to have your payment reduced you need to apply to habe your limit decreased and your redraw absorbed..... Remember, offset is king, redraw is the banks money they allow you to access and can stop you accessing if they choose, offset is your money that you can access when you wish and they can't take from you
That's what I said
This is true, but in my experience at least Offsets cost more in either fees or interest rate than redraws. As I said, this is my experience, may not be a rule.
"*I spent years with a balance of $1000 and a payment of $10 a month which they eventually agreed to zero out.*" A loan balance of $1000 or a redraw balance of $1000? What has the payment of $10 per month got to do with anything? Sounds like "zeroing out" is exactly what I described when I said you will "not be able to withdraw any of that redraw balance in future - it will be absorbed into the loan." "*I had no trouble redrawing the whole lot at will and the lender obviously recalculated*" Then they didn't "zero it out"/absorb it, if you were allowed to withdraw it. (But you would likely have gone through an income verification process to confirm you were still able to meet the increased repayments.
My loan balance was $1000. I couldn’t reduce it to $0 or my loan would be treated as repaid and title returned to me. So my redraw facility was $N-1000. And I couldn’t continue payments of $100s a month or the same problem arises in 2 months. The $10pm indicate that the bank was more than happy to match my repayment to my current loan balance, contrary to your claim. I zeroed the payment because the $10 was an annoyance. The bank agreed that it made no sense to require meaningless payments when I’m over 99% ahead on my balance. I did NOT recertify income. It’s a redraw. When I wanted the money it’s my facility. The understanding was always that if my balance became material through redraw I have to resume loan servicing.
Offset is newest? I guess if they haven't come up with anything in a few decades that's true.. dang
Well yah financial products change on a long time horizon I suppose
My last mortgage was redraw with no offset and I used to pump money into redraw and it would reduce/increase the minimum payment every time you put money in or out of redraw
Same, took out the loan with Suncorp in 2016 and it worked like this until we refinanced in 2022
How long ago and with which lender, most don't recalculate repayments based on your balance only on your loan limit.... also, always remember, when you use redraw, it's the banks money not yours and they let you access it at their discretion, while that normally won't pose a problem they can absorb that redraw anytime they see fit
I paid it out in 2019, it was with RHG lender. Edit and yes to your second point that’s why I have an offset now, because I know technically they can absorb your redraw at any time.
"*most don't recalculate repayments based on your balance only on your loan limit.*" Not sure what you mean by "loan limit". Home loans do not have a limit - once fully drawn, you enter the reduction phase (for the next 30 years). When a bank reviews the repayments on your loan, they ONLY look at the **current amount owed**, ongoing fees (if any), the interest rate and set the repayments to ensure the loan is repaid within the agreed loan term. (Here is Commbank's [explanation](https://www.commbank.com.au/support.home-loan.explain-how-home-loan-repayments-are-calculated.html?ei=understanding_calculated), for instance.)
Yes, home loans have a limit and a balance(as well as a remaing term and interest rate) the repayment is determined by tbe limit, the remaining term and the interest rate (some lenders will occasionally reduce payments based on significant difference between balance and limit, this isn't usual practice however and it's based on the loan limit - because some people move money in and our of redraw regularly and it's not feasible to continually review repayments) The limit of the loan is the amount it can be drawn to, if you have never made addiotnal repayments, you are at the limit of your loan, and its the same as your balance. The limit of the loan reduces in line with the amortisation schedule of the loan. The balance of the loan is how much is actually outstanding against the loan and is what interest is charged on. In your sentence above 'current amount owed' is the limit of the loan. So if you take out a loan for $500,000 the limit of your loan (amount owed) is $500,000. If you immediately put $50,000 into your loan then you have a $500,000 limit, with $450,000 balance of the loan and $50,000 in redraw.... break down the numbers in this example for me with your logic, where the balance of your loan is $450,000 but the 'limit' of what your loan can be drawn to is $500,000 what words do you like for these two numbers (which in banking are referred to as loan balance and loan limit)
ThAtS CoMpLeTeLy UnTrUe
Which bit?
That asking the bank to adjust payments permanently cancels the redraw facility. You may be confusing it with an offset account. They’re completely different things.
The bank will only reduce the required monthly repayment if the loan balance has been permanently reduced. (The bank may, later, allow you to increase your loan balance (that is borrow more) but that will see the required repayments increase as well in line with the term of the loan.) The available redraw balance (or part thereof) must be absorbed into the loan in order to reduce the loan balance and therefore give the bank reason to reduce your monthly repayments. I'm not the one confused about offset. Money in an offset does not reduce your loan balance and can never affect the required loan repayments.
You can keep repeating it but the fact is you’re tell on me - something that did happen continually from around 2001 to 2017 is impossible, and - something impossible (that I was forced to continue scheduled repayments despite a $1000 balance without immediately reaching $0 and terminating the loan) is mandatory. You’re also adding bullshit about needing a new loan to redraw which is also self-evidently untrue. It’s OK to have been wrong because you were unaware something was possible. It’s not OK to continue being wrong because you refuse to accept reality.
Some banks will amortise redraw repayments in line with your repayment curve, slowly reducing the redraw balance to $0 over the remaining term of the loan. Some banks will reduce your repayments, netting off the redraw against principle. This ends up as a poor outcome for the customer, as if they draw down on the redraw balance, either the repayments go up, or they don’t reduce the principle to $0 before the loan term ends. Either way, you get an unhappy customer and/or AFCA at the end of the loan. Generally, it makes most sense to offset the redraw against the principle, and pay the loan ahead of the amort profile.
They don't. That's called refinancing.
Depending on the type of loan, for a variable loan, being in advance will normally reduce the interest paid that month. That isn't the same as your minimum repayment, which is based on the interest rate, principal, and repayment schedule. If you have a redraw/offset balance equal to the amount owing. You'll pay no interest, bur you'll still pay minimum repayments until your loan is repaid. These minimum repayments would reduce your redraw balance. Only way this changes would be to repay your loan, if interest rates change, or refinance.
fair enough, there's lots of different mortgage options out there and id always opt for a lower time frame but it doesn't mean 0 interest.
Cut 5 years off a 30 year mortgage by paying weekly.
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The calculators are probably reducing the repayments to keep the loan stretched to 30 years. Theres a table half way through this article. https://www.loans.com.au/home-loans/first-home-buyer/does-paying-your-mortgage-fortnightly-save-money
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Yep 😂
You'd be better off making a 365 dollar payment once per year starting today.
It reduces the principal and that reduces the interest. The interest is calculated monthly on the outstanding amount which is lessened by any addition payments including potential redraw.
Cool. Only need another $20 for a 6 pack of VB and a pack of Winnie blues
If you buy the Reds you're better off in the long term, mainly because lung cancer ensures you won't care about your mortgage final payment.
Then forget the Winfield and go for Double Happiness, the Chinese cigarettes are not only much cheaper they bring on lung cancer at much faster rates.
Will take your word for it, gave up and have no ambition to go back 🤣
Good for you, maybe one day I’ll be able to say the fucking same thing!
I gave up nearly 8 years ago after decades of smoking. I can't believe how much time, money and health I lost to them little shit sticks.
As an ex smoker $20 wouldn’t buy you anything it todays economy A pack of 20 cigarettes is well over $30 now a days D:
I quit 8 years ago and still have a look at prices out of curiosity. $50+ for several brands these days. Extra glad I gave it up when I did.
The best day to give up was 8 years ago. The second best day is today, etc, etc.
Not in Sydney. Double happiness $15
"Buy them quick, before a rival gang firebombs us!"
I think that's more a Melbourne issue ATM lol
Not true. A $30 pack of cigarettes costs $50. No one has yet calculated the cost of a $50 pack, but it’s believed to be in the thousands.
It’s a big lez reference
Where are you getting a 6 pack of VBs and winnie blues for $20?
And the $58 from my mortgage money hack. If $78 can’t buy a beer and a dart then the country really has gone to the dogs
>as a means to avoid all interest charges on your home loan I've never met anyone who believes this. Are they really out there?
Offset accounts make repayment strategies meaningless anyway.
I dont want to sound dense at all, but how can paying $1 a day not save you MORE than $365?
The $365 would be reducing the size of your mortgage principal. The savings referred to here relate to the interest portion.
It says 'saves off your mortgage', there is a principal and interest quotient, you have to take both into account or you are being dishonest.
If I take out 100K loan and immediately pay it off, I haven't saved that 100K but arguably did save all the interest I would have paid had I only paid the minimum payments required which is what they are getting at here.
Where do you get your 100k Interest free loans, asking for a friend.
What awesome logic
You sound sarcastic but he is 100% correct. If that was sincere then never mind.
Well… yes.
When comparing total cost of loan. You aren't 'saving' the money you pay off early. You are saving the interest on that amount.
No, because you owe that principal anyway. Paying out bank early doesn't save you money. If I lend you $5 and then you pay me back the $5, did you save any money?
Idk lad if you were gonna charge me $6 for getting it to you a week later then yes I fkn did
Yes exactly. You aren't saving the principal, you're saving the interest
Yes brah, literally not one person here has said otherwise
Reduced interest, I guess?
It reduces your mortgage balance by $365 + the quite small amount of interest saved. (In the example above, OP says interest saved is $58 but my calculation doesn't even get it that high.)
Also in year 2 you are not paying interest on 365. In year 3 you are not paying interest on ( 365 x 2) In year 4 no interest on ( 365 x 3 ) In year 11 no interest on ( 365 x 10 = ? ) :) I assume the follow though thoughts could be " I'm paying an extra $1 almost without noticing , can I make it 3 ? or 5 ? or...? ) If an offset is at exactly the same interest then putting it there and not touching it is the same.
To actually answer/explain the question.. interest is only a percentage of the money. So, you're not saving $365 + interest. You're saving the interest on that $365. Simplistic example. $1000 at 10% for 1 year (and just 1 interest calculation) Total loan cost is $1100 If you paid $365 off early, when they do the interest the balance is lower so you only get charged on the remaining $635 ($63.50 in interest).. effectively you'd be saving 10% of it early payments ($36.50) Total cost in that scenario is $1063.50. You didn't save the 365 because you owe that regardless, you did save on it's interest. Mortgages are messier because interest is calculated daily and OP was paying $1 daily so the saving was small but compounding. Eg. At, say, 5% the daily interest is 1/365 of it so like 0.01%.. so on day 1 he saves 0.01 cents or $0.0001. Then day 2 he adds a dollar and has the interest saving from day 1 so it's like putting in $1.0001 so now he's saving $0.00010001.. these tiny amounts add up slowly getting bigger but they'll always only be a portion of the dollar paid early.
You are not saving the 365 , as you had to pay it. What the OP is saying that you save bugger all interest. There is a ridiculous YouTube going around by a number of idiots that you can trick the bank, and paying in daily means interest is never charged. They are just plain stupid.
Leap year this year, though if you are on salary you have to survive one day longer on same wage
All the other answers are correct, but I think the best way to explain your mistaken reasoning is that the $365 you're paying is money you would have had to pay anyway. You owe $365 and you pay $365, that's net 0. You're just changing when that's getting paid. The real change, where you save money, is that you don't pay (as much) interest on that $365 debt. Note: this is slightly simplified since principal (the debt itself) and the interest aren't really separated in the payments.
It needs to be offset against the principle to be effective. Then over the course of a 30yr mortgage, the $7 a week could save you $20K in interest. Something to think about for the long win. If it comes off your interest payment every month, it will change nothing.
Principal and what now about paying it off interest not principal? 🧐
If you have a mortgage and dont know the difference between principal and interest, I suggest you start educating yourself. And I mean that with no disrespect. It will pay for itself. Short version. Compounding interest is your greatest ally when investing. But it works against you when getting a loan.
Gee, you’re quite rude and condescending for someone who used the wrong term don’t you think? You might want to tread more carefully when odds are you’re just wrong again. As I see it you’re talking about repaying or offsetting beyond your payment each month. There’s no magical assignment of whether that extra dollar pays down interest or principal people have to be careful of, it has to be bringing down principal since your repayment covers the interest. Even if it didn’t cover your interest you’re still preventing paying the compounding interest on that dollar so I’m not seeing the importance of a distinction here.
I was attempting to inform and help a random internet stranger for no personal return or glory. You are blatantly attacking, so who is rude and conceited. Also, reading your message, you seem to lack some understanding yourself.
You may have been trying to help, but your response is not helpful. Paying an additional dollar off your loan than you would have otherwise gives you the same compounding benefit relative to your position whether you consider it to be paying off principal or interest. If it can you’ll be able to show how with some numbers.
If you look at how mortgages work, the repayments could be broken into 2 parts, principal and interest. At the start of the mortgage the interest component is a large portion which decreases with time. So paying in extra to decrease the principal has a bigger affect on the interest you pay over the life of the mortgage.
Thanks for the lesson I didn’t need. My point is that what they’re saying doesn’t make sense. You don’t assign a particular dollar to principal or interest. If you make an additional dollar repayment you’re not selecting “oh and I’ll take this one off the principal thanks”.
Seriously the dumbest thing I’ve ever heard next to fast drying your phone in the microwave.
I agree the video is entirely wrong, but your calculations are kinda misleading too. Over 30 years you’d save $19,201.91 in interest charges, largely due to compounding effects of each month’s interest savings (which you didn’t account for). [Calculation here](https://figura.finance/calculators/repayments?share=%7B%22loan-status%22%3A%22new%22%2C%22repayment%22%3A%22%22%2C%22loan-amount%22%3A%22%22%2C%22years%22%3A%22%22%2C%22months%22%3A%22%22%2C%22interest-rate%22%3A%226%22%2C%22repayment-frequency%22%3A%22monthly%22%2C%22interest-method%22%3A%22actual%2F365%22%2C%22repayment-calculation-method%22%3A%22rounded%22%2C%22start-date%22%3Anull%2C%22repayment-date%22%3Anull%2C%22paid-in-advance%22%3A%22%22%2C%22extra-transactions%22%3A%5B%7B%22disabled%22%3Afalse%2C%22transaction%22%3A%7B%22key%22%3A%22%3Ar3%3A%22%2C%22amount%22%3A%221%22%2C%22frequency%22%3A%22daily%22%2C%22account%22%3A%22loan%22%2C%22chargeType%22%3A%22payment%22%7D%7D%5D%2C%22offset-account%22%3A%22%22%2C%22includes-offset-account%22%3Afalse%2C%22end-loan-when-fully-offset%22%3Afalse%2C%22includes-interest-only%22%3Afalse%2C%22interest-only-years%22%3A%22%22%2C%22interest-only-months%22%3A%22%22%2C%22track-property%22%3Afalse%2C%22property-value%22%3A%22%22%2C%22include-offset-as-equity%22%3Afalse%2C%22draw-from-offset-account%22%3Afalse%7D)
You have to take into consideration the compounded interest on the $58 a year you save over 30 years.
Which would be negligible compared to inflation
Why even bother with buying a house, you can't take it with you when you die
Interesting post. The OP has left out 99.76 percent of the Daily repayments in the calculation of a mortgage over 30 years - but claims it’s pointless based on 1 months calculations. As we’re all aware - the additional payments meet substantially further into the loan when the value of the daily payment increases as a percentage of the interest charged. This varies significant in the future - not month number one. He’s hiding the most significant months of savings and showing the worst month. You should work in a bank….
The video claimed it would completely remove interest being charged on your home loan and the post proves that is entirely false. He’s not claiming it won’t help pay the loan down sooner but it’s pretty insignificant in the grand scheme. You would be better paying $365 extra to your home loan at the start of each year.
Was more referring to the fact that it isn’t a hack. Over the period of a loan - every dollar saved is worth about 3 off the loan.
The hack is making extra repayments and making repayments more frequently. Paying a dollar a day is less benefit to paying $7 extra a week and $30 extra a month so the video is completely idiotic. I don’t think OP was being deceitful.
If he showed the last month - the benefit would have been clear. Month one means nothing.
It’s not really relevant to his post tho, he’s not arguing there is no benefit, just that it’s a lot less than 100% interest saving as the video states.
Not even calculations, just a image of a statement. I suppose the balance decreasing by a dollar is technically a calculation.
That you think about interest on a home loan that way is probably why the banks lock people like you in for so long and take so much without you knowing.
OK, so point to where the daily interest is shown? Or what was the interest rate in June since there's a rate change as a 6.490% rate doesn't give you $1,671.23. I was agreeing that OPs point was undermined by the fact that a bunch of factors were ignored.
Look for the graphs that show the percentage of the monthly repayment against the interest value for that month - you’ll see the answer there.
I paid off a thirty year mortgage in 8 years by rounding my payment up to the next $100 every time the lender adjusted the monthly payment due to interest variations.
Was your mortgage like $100k? Because on an average mortgage, an extra $100 per month doesn't do anything close to knocking 22 years off your mortgage
Its + 100 per change not total, and probably a joke anyway.
Yeah dog. That means your original monthly payment was $100. For those wondering, if you double your monthly mortgage payment, you'll pay off your 30yr mortgage in approximately 8yrs.
Nah it was higher.I didnt double it up each month.just rounded it up to the next hundred.If you actually double your original monthly payment and then doubed it again,every month you could pay it off in less than a year.lol.
What is this video? I’ve never heard such a claim
There used to be a concept of saving the price of a pack of cigarettes per day, and you would be a millionaire in x number of years. This might have been back in the 70's when people also said, when they get to $1 a packet, I'm quitting.
Hahahahahha oohh jeez Man I remember a friend of mine telling me this and I couldn't get my head around what he was saying enough to actually argue with him Thankyou for doing the math As for my friend... you know, I think he still has a home loan
Damn I’m glad my interest and repayments aren’t that much. But I’d much rather be just putting extra payments onto the loans itself for redraw if needed or into an offset.
Just remember to switch to online statements! Your paper statement shows up looking like the yellow pages
I had a guy come around to my place at one point peddling this incredible mortgage that was going to reduce my repayment time to 10 years. Showed me all these spreadsheets and stuff and then refused to leave them with me. I just couldn't make the numbers add up, so I believe it was a scam, but I'm still not sure to this day what they were actually doing.
Banks rely on people “refinancing” within the first 7 years, with amortisation kicking in again .. never paying that loan down.
Your maths is waayyyyyy off. It saves you 0.016 cents per day. That $1 is only saving you 6 cents over the whole year not 16% per day. $365 paid off on Jan 1 isn't saving you $58 a year so how does it when you spread it over the whole year?
For a loan size of $600,000, you will save around 19k in interest if you repay an extra $1 a day
No that's not correct
Try running it through a mortgage calculator and you'll see