What happens if I accidentally pay off the loan early? Do you guys get sad?

Smashed the Avo Toast Savings Goal? Good News! You Can Pay Off Your Loan Early in Australia

Cracking smashed avo on toast every day might not be the key to early loan repayment after all (sorry millennials!), but what if you actually manage to pay it off ahead of schedule in Australia? Fear not, mates! Unlike a sad Vegemite jar at the back of the fridge, there’s no need for lenders to feel glum when you pay your loan early. Here’s the deal:

The Upside of Being Ahead of the Mortgage Maze

  • Save Heaps: The biggest perk? You’ll be stopping the interest train in its tracks. Early repayment means significant savings on the total interest you pay over the loan term. That’s more money for that dream vacation or the next hot investment (aside from smashed avo, that is).
  • Peace of Mind: There’s a certain satisfaction in knowing your home is truly yours. Without a looming mortgage payment, you’ll have more financial freedom and less stress.

What Happens When You Pay Early?

  • Check the Early Repayment Fee: In Australia, lenders can charge an Early Repayment Charge (ERC) if you pay off a fixed-rate loan within a certain period (usually the first few years). This fee compensates the lender for the lost interest they would have earned. However, some lenders offer fee-free repayments after an initial period. Be sure to check your loan contract for details.
  • Redraw Facilities: Some loans come with redraw facilities, allowing you to access any extra repayments you’ve made like a savings account. This can be handy for unexpected expenses or that dream renovation.

So, Should You Pay It Off Early?

It depends! Here’s a quick guide:

  • Do it: If you have a high-interest rate loan (like a credit card) or a hefty ERC expires soon, early repayment can be a smart financial move.
  • Hold off: If you have a low-interest rate loan (like a fixed-rate mortgage with a low ERC) and other financial goals (like saving for retirement), investing that extra cash elsewhere might be more beneficial.

The Takeaway

Paying off a loan early in Australia is a cause for celebration, not lender blues. It saves you money and brings peace of mind. Just make sure you understand any Early Repayment Charges and consider your overall financial goals before diving in. Now go forth and conquer that loan – it’s no match for your Aussie determination!