In short: A $30,000 lump sum paid into a $600,000 loan at 6.00% p.a. with 28 years left saves $107,710 in interest and clears the loan 3 years 1 month early, provided you keep the repayment exactly where it was. Each $1 of lump sum saves $3.59 of interest. Reduce the repayment afterwards and almost all of that saving disappears.
- Repayment (unchanged)$3,691/mo
- Interest without the lump sum$640,090
- Interest with the lump sum$532,380
- Loan paid off24y 11m instead of 28y 0m
- Time saved3 years 1 months
- Return per dollar of lump sum$3.59 of interest saved per $1
Assumes the repayment stays the same after the lump sum, which is what produces the saving. If you reduce the repayment instead, most of the benefit disappears.
Interest saved by the lump sum: $107,710
That is a general estimate on standard assumptions. Every lender applies its own expense benchmarks, income shading and policy, so the real figure moves from lender to lender. Gorakh spent years as a senior credit officer deciding exactly these questions. Send him the numbers above and he will tell you what is realistic and which lenders fit — at no cost to you for home loans.
- A former senior credit officer reads itGorakh assessed loan applications on the lender side before he became a broker.
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A tax refund, a bonus, an inheritance, a bit of leftover redundancy pay. The question is always the same: what does putting it into the mortgage actually buy? This calculator answers it in dollars and in years.
How this calculator works
Enter your loan balance, interest rate, years remaining, the size of the lump sum and how far into the loan you will pay it. The tool runs two amortisation schedules side by side: one at your current repayment with no lump sum, one identical but with the lump sum applied in the month you nominate and the repayment held constant.
The difference between the two interest totals is your saving. The difference in the number of months is the time you buy back.
Why the repayment must stay the same
This is the whole mechanism, and it is where most people lose the benefit without realising it.
When you pay a lump sum off a principal-and-interest loan, the balance drops immediately and so does the interest charged on it from that month on. If your repayment stays at the old level, more of every future payment goes to principal, the balance falls faster, and the loan ends years early.
But most lenders will happily recalculate your minimum repayment down to match the smaller balance over the original term. If you accept that, you take the benefit as a slightly lower monthly payment instead of a shorter loan, and the interest saving shrinks to a fraction of what it could have been. The loan still finishes on the original date.
So when you make a lump sum payment, call the lender and confirm the repayment is not being reset. Some lenders will not reduce it unless you ask; others reduce it automatically.
Worked example
You owe $600,000 at 6.00% p.a. for illustration, with 28 years remaining. The repayment is $3,691 a month. Twelve months from now you pay in $30,000 and leave the repayment untouched.
| Without the lump sum | With $30,000 after one year | |
|---|---|---|
| Monthly repayment | $3,691 | $3,691 (unchanged) |
| Total interest | $640,090 | $532,380 |
| Loan paid off in | 28 years 0 months | 24 years 11 months |
| Interest saved | $107,710 | |
| Interest saved per $1 of lump sum | $3.59 |
Follow the money. In year two the balance is roughly $30,000 lower than it would have been, so the interest charged that year is about $1,800 lower. That $1,800 is not spent, it goes to principal, so the following year the gap is wider than $30,000. Compounding runs in your favour for 24 more years, and the small first-year figure grows into $107,710.
The return-per-dollar line is the most useful number on the page. At $3.59 of interest saved per dollar paid in, this is a risk-free, tax-free return that very few alternatives match at the same level of certainty.
When the lump sum is worth more, and less
| Factor | Effect on the saving |
|---|---|
| Higher interest rate | Larger saving. The saving is interest you no longer pay. |
| Earlier in the loan | Much larger saving. A lump sum in year 1 has 27 years to compound; the same amount in year 20 has 8. |
| Longer remaining term | Larger saving, for the same reason. |
| Repayment reset lower | Saving collapses to a small fraction. |
| Fixed-rate loan | Often capped. Many fixed loans limit extra repayments during the fixed period, with a break cost above the cap. |
The timing point deserves emphasis. Waiting a year to decide is not neutral. On the numbers above, delaying the same $30,000 by twelve more months costs several thousand dollars of the eventual saving.
Lump sum, offset account or redraw?
All three reduce the interest you pay. They differ in what happens to the money afterwards.
- Direct lump sum repayment. Cheapest and simplest. On a variable loan the money is usually still reachable through redraw, but redraw is a lender facility that can be reduced, frozen or reassessed. On a fixed loan it may be locked away entirely.
- Offset account. Every dollar in the account offsets a dollar of loan balance, and you keep instant access through a normal transaction account. It costs the same interest saving, usually for an annual package fee. Better if there is any chance you will need the money.
- Redraw. A middle ground with lender discretion attached. Our guide to offset versus redraw covers the practical and tax differences, which matter a great deal if the property might become an investment later.
If the cash might be needed for a renovation, a car or a business, put it in offset rather than committing it. If it is genuinely surplus and the loan is variable, a direct payment is the cleaner move.
What the calculator does not model
- Break costs on a fixed loan. Fixed loans commonly cap extra repayments; exceeding the cap can trigger a break cost. See breaking a fixed rate loan.
- Rate changes. The calculation holds your rate flat for the whole term. A rising rate makes the lump sum worth more, not less.
- Fees. Some lenders charge for a partial prepayment on non-standard products.
- Tax. Interest saved on an owner-occupier loan is not income and is not taxed. On an investment loan you are also giving up an interest deduction, so the after-tax saving is smaller.
- Regular extra repayments, which are a separate and often stronger strategy. Model those in the extra repayments calculator, or switch to paying half your monthly amount each fortnight using the repayment frequency calculator.
Frequently asked questions
Does a lump sum reduce my repayment or my loan term?
Whichever you choose, and the choice is worth six figures. Keep the repayment the same and the term shortens dramatically. Let the lender recalculate the repayment down over the original term and you get a small monthly saving instead. Most lenders do not do this automatically on a variable loan, but confirm it in writing after you pay.
Is it better to put a lump sum in an offset account or straight on the loan?
The interest saving is identical. The difference is access and flexibility. Offset keeps the money available and keeps future deductibility intact if the property ever becomes an investment. A direct repayment is simpler and cheaper, since offset usually sits inside a package with an annual fee. If there is any chance you will want the money back, use offset.
Can I pay a lump sum off a fixed rate loan?
Sometimes, up to a cap. Many fixed loans allow a set amount of extra repayments each year during the fixed term, with a break cost if you exceed it. Break costs are calculated on the lender's funding loss and can be large when rates have fallen. Check your loan contract or ask us to check it before you pay anything in.
How much does a $10,000 lump sum save?
On the same $600,000 loan at 6.00% p.a. with 28 years remaining, the saving scales roughly with the amount, so $10,000 paid in year one saves in the order of $36,000 of interest and takes about a year off the loan. Use the calculator with your own balance, rate and timing rather than scaling a rule of thumb.
Should I pay off the mortgage or other debts first?
Usually the highest rate first. Credit cards and personal loans typically carry rates well above a home loan, so a dollar there saves more than a dollar on the mortgage. Once high-rate debt is clear, the mortgage is next. If you are juggling several debts, our debt consolidation calculator compares the paths.
Talk to GNT Finance
Before you commit a lump sum, it is worth checking whether the loan it is going into is the right one. If your rate has drifted or the structure no longer fits, a refinance plus the lump sum can be worth far more than the lump sum alone.
Book a free consultation or call 0426 403 703.
Written by Gorakh Timilsina
Founder, CEO & Senior Mortgage Consultant at GNT Finance. Gorakh started as a broker assistant, spent years as a senior credit officer assessing loan applications, and now helps Melbourne families get the right loan approved. English, Nepali and Hindi spoken.