Unloan Higher than Normal Weekly Repayments

azero on 24/10/2022 - 16:47

I have my mortgage with ANZ owner occupied, variable rate. <80% LVR

Since they are charning me 4.54% where as new customers get a lower rate, I am looking into refinance options.

I was looking at unloan as they have a lower rate than most.

But what I realized that if you try to pay weekly with them, they calculate the weekly repayments as monthly divided by 4. Instead of the more common monthly X 12 / 52.

So for a 640K loan with unloan you will pay 768 per week. Instead of 706 per week that you'd normally get with other lenders if they had the same rate.

When I asked unloan rep about this, I was told that I'd be repaying the loan faster as you'd pay more towards the principal and he could follow up with the lending department as to why they use this unconventional way.

Btw, I get paid weekly so it makes sense for me to repay weekly. But I want to keep the repayments to a minimum to help with the cash flow, so it looks like just paying 60/wk extra is going to negate the lower rate of unloan.

So ozbargainers, is there a catch in there or something that I am missing ? Or else is it really wise way to pay weekly like that with a higher amount so you'd pay down the loan faster.

If it makes any difference, the plan is to sell the house in 3 yrs or so. Thanks.

Financial Home Loan

Comments

  • SF3 on 24/10/2022 - 16:58
    +4

    In a principal & interest repayment. The more frequent the repayment, e.g. from monthly to weekly, means the interest calculated from principal amount is reduced quicker.

  • prisonerzero on 24/10/2022 - 17:42
    +4

    SF3 is partly correct, paying weekly instead of monthly will reduce the interest payable each month slightly (because it is the average daily balanace of the loan is lower than it would otherwise be).

    But what you have noticed is that using the Unloan method you will actually make a whole extra monthly repayment each year vs the ANZ method (52/4=13). This could save you years off the loan over the full 30 year term, all other things being equal). Example here.

    The conventional wisdom is that if you are already budgeting weekly, most people would just divide the monthly repayment in 4 and set that aside - but it would be more than needed on average, so in putting this amount towards the loan you wouldn't notice the extra payment (because it is averaged out over the year).

  • Muzeeb on 24/10/2022 - 17:46
    +2

    SF3 and prisonerzero are partly correct.

  • fredz0r on 24/10/2022 - 18:17

    Just pay monthly then….

  • Seraphin7 on 24/10/2022 - 18:19
    +4

    SF3, prisonerzero, and Muzeeb are individually partly correct, but collectively fully correct.

    But in all seriousness, either get the lowest rate you can get with offset and then all this technicality goes away … or understand that while your "repayment" is higher with the Unloan method, you will be paying the loan off more quickly as the average daily balance (principal) of your loan will always be lower (all else being equal) than the ANZ method.

    The only real catch here is it would appear (potentially) that the Unloan method may not enable you to build up loan equity that can be redrawn if needed. Although if you don't end up needing it before you sell the house in three years then that is a moot point.

  • wei13 on 24/10/2022 - 19:13

    Have you tried to speak with ANZ for a lower rate ?

  • DingoBilly on 24/10/2022 - 19:48
    +1

    SF3, prisonerzero, Muzeeb and Seraphin7 are individually partly correct, but at an aggregate level they'd conceptually cover everything off.

    I'd go with paying extra off earlier if you can to reduce how long it takes to pay the whole thing off, but understand cash flow can be an issue then…

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