Broker guide
Mortgage Recasting in Australia: What Changes?
Can a lump sum reduce the required repayment without a new loan? Distinguish mortgage recasting, extra repayments, a term change and refinancing.
- Published
- Updated
Mortgage recasting means recalculating the required home loan repayment after a lump sum, using the smaller balance and the remaining agreed term. In Australia, request that outcome through your lender’s repayment-change process. Paying extra reduces the balance, but the required repayment and direct debit need separate attention.
Recasting Versus Paying Extra
Recasting a mortgage keeps the existing loan and remaining term while recalculating the payment needed to repay the reduced balance. A lower required payment releases money in the household budget. Keeping the previous payment instead repays the reduced debt sooner, assuming the rate stays unchanged.
An extra repayment is the money paid above the amount due. Moneysmart’s repayment guidance explains how lump sums reduce interest and help repay a loan faster. It also directs borrowers to establish whether their loan permits extra repayments and charges fees.
A redraw balance records money paid ahead that the lender allows the borrower to access. It does not, by itself, establish a new minimum payment. CommBank’s redraw guidance explains that withdrawing redraw can increase the loan balance and repayments, and that available redraw can reduce over the term.
Keep the requested change precise when discussing alternatives. Extending the term changes how long the borrower has to repay. Refinancing replaces the loan, with a separate comparison of rates and costs.
Moneysmart’s switching guidance warns that a longer new term can increase interest, even when repayments fall.
Check the Australian Lender’s Process
For a CommBank borrower, the published route is a request to recalculate repayments, followed by a separate decision about the amount collected. Its repayment-change instructions say borrowers can request a recalculation at any time. Additional repayments are one reason its minimum repayment can decrease.
CommBank also says it leaves the direct debit unchanged when the minimum falls. The borrower can retain that payment to repay sooner or reduce it to the new minimum. NetBank and the CommBank app provide repayment management, while other requests go through the bank or a branch.
Apply that process to the borrower’s actual product. CommBank excludes fixed-rate loans from redraw during the fixed period, so accessible funds cannot be assumed across its loan types. A split loan needs each account checked separately.
For another lender, ask for repayment recalculation after the proposed lump sum, with the existing remaining term retained. Obtain the product’s extra-repayment limits and any variation charge before transferring the money. Record whether recalculation changes access to redraw and whether the lender requires a permanent limit reduction.
A product called “recast” is not needed to describe the request. The bank’s response must identify the required payment after the lump sum and the term used to calculate it.
Compare Payment, Term and Total Interest
A lump sum followed by unchanged payments saves more interest than the same lump sum followed by lower payments, under identical rate assumptions. The lower-payment option trades some of that saving for immediate budget relief.
Consider a hypothetical principal-and-interest loan with a $500,000 balance and 20 years remaining. Assume a constant 6% annual rate, monthly interest at 6% divided by 12 and payments at each month’s end. Exclude fees, offset funds and further redraws.
The scheduled payment is approximately $3,582.16 a month. A $100,000 lump sum reduces the balance to $400,000 immediately, before the next interest period. Both lump-sum options below start with that same reduced balance.
| Choice | Monthly payment | Time to repay from now | Future interest |
|---|---|---|---|
| Keep $500,000 balance, with no lump sum | $3,582.16 | 240 months | $359,717 |
| Pay $100,000, then keep the previous payment | $3,582.16 | 164 months | $186,914 |
| Pay $100,000, then recalculate over 20 years | $2,865.72 | 240 months | $287,774 |
Figures use unrounded payments internally and a smaller final payment where required. Future interest excludes interest already paid and the lump sum itself. A lender’s daily interest calculation and payment rounding can produce different figures.
Recalculation reduces the monthly payment by about $716.43. Keeping the previous payment instead clears the loan 76 months earlier and saves approximately $100,860 more future interest. Choose the comparison that matches the client’s goal: lower required payments or faster debt repayment.
Confirm the Variation
Confirm the revised minimum repayment in the lender’s account records before reducing the amount paid. A receipt for the lump sum proves the money arrived. Approval of a request and the resulting repayment schedule establish what must be paid next.
Check these details against the lender’s confirmation:
- The lump sum has cleared and the loan balance reflects it.
- The revised minimum, payment frequency and first affected instalment are recorded.
- The remaining term matches the request, with any change to the rate or fees explained.
- The available redraw and any permanent limit reduction match what the borrower accepted.
- The payment instruction collects the intended amount from the correct account.
CommBank’s statement guide identifies the required repayment as the minimum needed to repay within the agreed term. Compare that requirement with the direct debit, because they can differ after a recalculation. If the account still shows the old minimum, keep meeting it while the lender resolves the request.
