If you have a home loan and want to work out the total amount of interest you’ll repay, it can be quite difficult. Your lender will make your life easier by providing statements, online banking or other ways to check your home loan balance. But if you want to work out how much in total you’ll repay over the life of your home loan, you may need to find alternate options like an online home loan calculator.
How does a lender calculate my home loan balance?
Your home loan balance is the total amount you need to pay back to the lender over the life of your loan, which is set out in the loan terms. This amount includes not just the money you borrowed but also the interest accumulated during the years the loan is outstanding. You’ll likely notice the interest you pay will decrease over time as you make repayments and lower the outstanding amount. The interest you pay is calculated monthly based on the balance remaining at the time. Hence, as you repay the loan and reduce this balance, the interest will decrease.
Being on a variable rate rather than a fixed rate home loan is one reason you should consider keeping track of your home loan balance. This is because a variable interest rate can change, increase or decrease, which will then change the overall cost of your home loan. If you’re finding that the repayment costs are becoming unmanageable and you still have a sizable home loan balance. In this case, you may want to consider refinancing your home loan. Even if you don’t switch to another lender, finding more competitive rates elsewhere may help you negotiate lower rates with your current lender. You’ll still need to make sure you have sufficient funds to keep making your home loan repayments on time however they may be lower.
Why do I need to use an online home loan remaining balance calculator?
Using a home loan calculator can help you manage your finances and plan out your budget. The home loan term or length of time you’ll be making repayments can easily exceed twenty years, you can go through many life changes in that time. Keeping track of how much you still owe on your home loan can be difficult, especially if you’re going through a rough patch. You can check the impact of temporarily changing the home loan terms, like switching to interest-only repayments, with a home loan calculator. If the figures look like they’ll ease your financial burden, you could ask your lender about making interest-only repayments.
On the positive side, you can also use a home loan balance calculator to see how you might save money on your home loan. You can see how much you’d save if you switched to a lower interest rate, what the costs would be if you decrease the loan term or other changes. Some online calculators have built-in algorithms which suggest options for reducing your total interest payment. You could also see if you’re able to repay your home loan in full earlier than the set loan term. Doing this will allow you to end up paying less interest, which can be a significant saving. You could also use a home loan calculator before you finalise the home loan to confirm whether the repayment terms are suitable for you.
What should I know about using a home loan balance calculator?
Whether you calculate the home loan balance by yourself or by using an online calculator, you should consider confirming the calculation is accurate with your lender. Some calculators use an average interest rate over the entire loan term, which may not be the case with your interest rate. Also, your lender may compound the interest differently, or you may have to pay other fees.
Similarly, you may not get the savings projected by a calculator on repaying your loan early if your lender has restrictions on lump sum advance payments. The lender may also not see your financial situation the same way you do when, for instance, estimating the amount you can save on repayments.