Revolving credit mortgage calculator
What a revolving credit mortgage would save you, how much sooner you'd be debt free, and whether it beats simply fixing at a lower rate.
Enter your details in the purple cells. Yours to keep and change.
How a revolving credit mortgage works
It's essentially a large overdraft secured against your house. Your income goes in, your expenses come out, and interest is charged on whatever the balance happens to be that day.
The theory is straightforward: if you earn more than you spend, the balance trends down faster than it would on a standard table loan, because every dollar of income is working against the mortgage from the moment it lands rather than sitting in a savings account until payday.
Say you have a $50,000 revolving credit facility and $7,000 of monthly income arriving. The balance drops to $43,000 the day you're paid, then climbs back through the month as you spend — hopefully finishing below where it started before the next pay arrives.
The trick is keeping the balance low for longer
Interest is calculated daily. So it isn't just how much you spend, it's when.
Money against the loan earlier, and money out of it later, both help. In practice that means paying the mortgage weekly rather than monthly, and delaying expenses where you can do it without incurring penalties — including putting spending on a credit card so it leaves the account a month later, provided you never pay a cent of card interest.
Example: Paying $84,000 a year expenses monthly rather than weekly saves around $1,000 in interest — on a $50,000 loan at 8% over 25 years, with $7,500 of monthly income.
The bigger the gap between what you earn and what you spend, the bigger the difference. On a $50,000 facility it's a decent return for very little effort. On a larger one, more.
What it costs you
Three things to weigh before setting one up.
The rate is significantly higher. Revolving credit sits at floating rates, typically well above what you could fix at. That's the price of the flexibility, and it's why the amount you put on revolving credit matters more than whether you have one at all. Ideally you'd only put across as much as leaves you genuinely better off than the fixed alternative.
It requires real discipline. You need to know your cashflow intimately, and you need to be certain that having a large available balance doesn't quietly become permission to spend it. The credit card trick above only works if you clear it in full, every month, without fail.
Floating rates move. Up as well as down, and the calculation you do today assumes a rate that won't hold.
Banks also limit how much they'll allow on revolving credit, so the decision may be partly made for you.
A common strategy in the plans I provide for my clients is to direct any defensive asset allocation for money needed in the next 1-9 years towards the revolving credit or offset mortgage. If you need help deciding your ideal defensive asset allocation then get in touch today for a no obligations chat.
Two types — and this calculator covers one
Some revolving credit loans reduce the principal as you go, like most mortgages. Others are interest-only, relying on the balance falling over time through the income-spending gap, or on the property being sold before the principal falls due.
This calculator models the reducing-principal version. I don't encourage interest-only revolving credit over the long term, so haven't built a calculator for it — though if that's what you're looking at, get in touch and I'll talk it through with you.
What the calculator shows
Because you'd probably be fixed at a lower rate if you weren't on revolving credit, the calculator also shows what you'd have saved fixing instead — so you're comparing against the realistic alternative, not against doing nothing.
You'll get a summary at the top and detailed weekly balances below.
Using the spreadsheet
Set the frequency of your income and spending, and of your mortgage repayments — weekly, fortnightly or monthly.
Add up to three lump sum payments you're expecting. For a planned withdrawal, enter a negative number.
Set growth assumptions for how fast you expect your income and expenses to rise.
One assumption to be aware of: one-off contributions and withdrawals are spread across the year, because the calculator can't know when in the year they'll happen. So a lump sum received early in the year will do slightly better than the calculator shows, and one received late will do slightly worse. Mid-year was the line I had to draw.
Worth playing with the frequency settings to see what changing your spending or repayment timing actually does. Then you can decide whether it's worth the hassle for you.
Revolving credit or offset?
Both use your cash to reduce mortgage interest, but they suit different people.
An offset keeps your savings in separate accounts and simply nets the balances off the loan. It suits someone with a decent lump sum sitting still — an emergency fund, a deposit waiting to be spent.
Revolving credit puts your income and spending through the loan itself. It suits someone with a consistent gap between what they earn and what they spend, and the discipline to manage a large available balance without dipping into it.
You can compare both against a standard table loan using the main mortgage calculators.
Not sure how much to put on it?
Getting the amount right is the whole game. Too much and you're paying a premium rate on money that should be fixed. Too little and you are leaving money on the table.
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