Home-loan specialist Lisa Montgomery Q&A

By Nila Sweeney

Extra repayments
Hi Lisa. I have paid extra into my current loan. However this extra amount is not available for redraw. Can you please explain how this can happen? We have paid an extra $30,000 in since our $550,000 loan was established in August 2008, plus we are also making fortnightly payments to help reduce interest.

When I check the calculators online, the amount our principal is reducing is not the same as my statement from my lender and the amortisation table/interest being charged. I am really concerned it has taken five people at the financial institution to explain this and last explanation I was given was that they use complex formulas to arrive at the amounts.

I am concerned that our money is being lost but to go to another bank will be expensive. Can you please advise who the best person would be to check our figures or at least some advice about how we can check them properly ourselves?Kind Regards, Kylie

This is a very odd situation, and obviously you are confused and frustrated due to the lack of explanation. You really need some third party help on this one, someone who can explore the terms and conditions of your loan contract, review your statements and identify if there is an error. If you feel that you are getting nowhere you need to make a formal complaint to the lending institution and go through their internal dispute resolution process. If there is still no satisfaction you can then proceed to an external dispute resolution body such as the relevant ombudsman service in your city and state.

Breaking fixed rate loan

Hi Lisa. I have a $350,000 fixed loan for another three years at 8.29%. Is there a way to get out of this fixed interest only loan without paying the huge payout fee? Thank you kindly, Sonja Grava
Unfortunately, Sonja, there is no way of breaking the fixed term on your loan without paying the break costs. I would advise you to contact your lender to identify if there is an alternative solution. Many borrowers with fixed rates are feeling a similar pressure now that rates have been reduced. I’m sorry there is no better news for you.
Fortnightly payment on fixed rate loans
Hi there Lisa. I am on a 3-year fixed rate home loan ($250,000 over 30 years) with the CBA on their wealth package. I am currently paying monthly but can I pay fortnightly and, if so, would I be better off in the long run? Thanks for any help offered. Cheers, Darren

This is an interesting question. Given your loan is on a fixed rate term you will need to consult your loan terms and conditions document to find out whether you can change your frequency of payment. Some fixed rate loan arrangements do not allow for additional repayments or changes to the frequency without a penalty cost to you – so this is essential information. I recommend you find this out before going ahead any further with your decision.

To answer your question regarding the benefit of fortnightly repayments, some people are a little confused about how to take advantage of paying fortnightly. The best way to pay fortnightly is to take your monthly loan instalment, divide it by two, and pay this each and every fortnight. This way you pay two extra fortnightly repayments each year and, given that interest is calculated daily, you are reducing your balance mid-month (as well at either end of the month) which means less interest paid overall.

If you calculate your fortnightly repayment by multiplying your monthly instalment by 12 and dividing by 26, the effect is much less than in the first example. Remember also that, if you can make additional repayments above your standard repay, it really works in your favour!
Selling to family member
Hi Lisa. My son and daughter-in-law are purchasing my rental house. No money will change hands on the transfer but they will pay me back over the long term. Any remainder they will be entitled to from my will. A solicitor will handle the paperwork for the transfer of the title on the property and the sale. I am wondering if they would still be entitled to the First Home Owner Grant and stamp duty concessions. Thank you very much, Kay

My suggestion to you, Kay, is that you contact the Office of State Revenue in your state to guide you through this. The transaction in question is considered as a ‘favourable purchase’ and as such may not qualify under the very strict terms and conditions of the First Home Owner Grant scheme. You really want to be clear about the eligibility before completing an application. You will need the experts for this one!

Comparison rates
Hello Lisa! For the sole purpose of indicating a comparison rate, the loan term used is often 25 years. Is it right to use a comparison rate to assist in making an informed decision if one is to apply for a home loan with a 15-year loan term? Thank you in advance for your assistance.

The comparison rate which is published along with the annual percentage rate of a loan product includes all of the upfront and ongoing costs which can be determined and listed in the terms and conditions of the loan contract. The comparison rate does not include the things that cannot be determined but may be ‘likely’ to occur such as redraw fees, late payment fees and early termination costs. Your lender will have a calculation tool that will be able to illustrate the comparison rate on your loan product over a variety of terms including 15 years. The best thing to do is to give them a call!

Interest only
Hi Lisa. I have been told by a friend that if we get an interest-only loan and make additional repayments each month, then I would repay the loan a lot quicker than if we made the same monthly repayments on a loan over a fixed period. I do not understand how interest-only loans work. However, I have attempted to use online calculators to help me work out the repayment schedules and taking an interest-only loan and making additional repayments seems to me to give the same result as a fixed period loan. So would there actually be any difference? Thanks for your help, Kevin

Hi Kevin. There is no benefit in taking an interest-only facility over a principal and interest loan when making the same monthly repayments. Interest on home loans is calculated on your daily balance. Therefore, if you reduce an interest-only loan at the same rate as a principal and interest loan there will no benefit. The key to really reducing interest and paying your loan off sooner is to pay as much as you can as often as you can, including on the principal!