How to Pay Off Your Home Loan Faster

Why Do Extra Repayments Make Such a Difference?

Home loan interest is generally calculated on the outstanding loan balance. Reducing that balance earlier means there is less debt on which future interest can be charged.

During the early years of a principal and interest home loan, a significant portion of each repayment may go toward interest. Additional repayments made during this period can therefore have a meaningful effect over the remaining loan term.

Government financial guidance confirms that extra repayments can help borrowers repay a mortgage faster and reduce total interest, particularly when additional payments are made early in the loan term.

The effect of an extra repayment can continue for many years. This is because you are not only reducing the principal—you are also avoiding some of the future interest that would otherwise have been charged on that amount.

1. Pay More Than the Minimum Repayment

One of the simplest strategies is to regularly pay more than the minimum required repayment.

You could increase your repayment by:

• $50 each week

• $100 each fortnight

• $200 each month

• A percentage of each pay increase

The amount does not need to be substantial to make a difference. The key is consistency.

Consider arranging an automatic transfer immediately after you are paid. This can help treat the additional repayment as part of your regular household budget rather than something you make only when money is left over.

Before increasing repayments, confirm that your home loan allows additional payments and whether any limits or fees apply. Fixed-rate loans may place restrictions on how much extra you can repay during the fixed period.

2. Make Fortnightly Repayments

Changing from monthly to fortnightly repayments may help you make the equivalent of an additional monthly repayment each year.

This occurs when you pay half your normal monthly repayment every two weeks:

• There are 12 months in a year.

• There are 26 fortnights in a year.

• Twenty-six half-monthly payments equal 13 full monthly payments.

For example, if your monthly repayment is $3,000, paying $1,500 every fortnight would result in total annual repayments of $39,000 rather than $36,000.

Not every repayment arrangement works this way. Some lenders calculate fortnightly repayments differently rather than simply dividing the monthly repayment in half.

Confirm how your repayment frequency is calculated before relying on this strategy.

3. Use Lump Sums to Reduce the Loan

Unexpected or irregular income can be directed toward the home loan rather than absorbed into everyday spending.

Potential lump sums may include:

• A tax refund

• Annual work bonus

• Commission payment

• Overtime income

• Inheritance

• Sale of an asset

• Cash gift

• Unused savings from a holiday budget

You do not necessarily need to contribute the entire amount. You could divide the money between your mortgage, emergency savings and other financial goals.

Even occasional lump-sum repayments can reduce the loan balance and the interest charged over the remaining term. Moneysmart specifically identifies tax refunds, bonuses and other lump sums as opportunities to make additional mortgage repayments.

4. Use an Offset Account Effectively

An offset account is a transaction account linked to an eligible home loan.

The money held in the offset account reduces the portion of your home loan on which interest is calculated.

For example:

• Home loan balance: $600,000

• Offset account balance: $40,000

• Interest generally calculated on: $560,000

Your actual home loan balance remains $600,000, but the linked savings reduce the net amount used for the interest calculation.

An offset account can commonly be used for:

• Salary deposits

• Everyday spending

• Direct debits

• Emergency savings

• Money set aside for bills

• Short-term savings goals

Because home loan interest is commonly calculated daily, keeping your money in the offset account for as long as possible may increase the potential benefit. Moneysmart defines an offset account as a linked transaction account that reduces interest by offsetting its balance against the mortgage balance.

An offset account may be especially useful where you need regular access to your savings or may retain the property as an investment in the future.

However, compare the full cost of the loan. A product with an offset account may have package fees or a different interest rate, so the likely saving should justify any additional cost.

5. Make Use of a Redraw Facility

A redraw facility allows you to access eligible extra repayments that you have previously made directly into your home loan.

For example, if you have paid $20,000 above your required repayments, some or all of that amount may be available through redraw.

While the funds remain in the loan, they reduce the outstanding balance used to calculate interest.

Redraw may suit borrowers who:

• Want to make regular additional repayments

• Only need occasional access to the money

• Prefer to separate mortgage savings from spending money

• Understand the loan’s redraw conditions

Access rules vary between home loans. Minimum withdrawal amounts, processing periods and restrictions may apply, so redraw should not automatically be treated like an everyday bank account.

There may also be tax implications if the property becomes an investment and redrawn funds are used for private purposes. The tax treatment of interest generally depends on how borrowed funds are used, so professional tax advice may be required.

6. Have Your Salary Paid Into Your Offset Account

Where you have an offset account, consider having your salary deposited directly into it.

This means your income begins reducing the interest calculation as soon as it reaches the account.

You can then use the account for normal household expenses while the remaining balance continues to offset the loan.

Some borrowers use a credit card for monthly expenses while leaving their salary in the offset account, then repay the card in full before interest is charged.

This approach requires careful budgeting. Carrying a credit card balance or missing the interest-free payment deadline could cost more than the offset strategy saves.

The arrangement should only be considered if you can reliably repay the card in full each month.

7. Direct Pay Increases Toward the Mortgage

When your income increases, consider directing some or all of the additional take-home pay toward your home loan.

This could apply when you receive:

• An annual salary increase

• A promotion

• Increased working hours

• Regular overtime

• Higher business income

• The repayment of another debt

Because your household budget was already operating on the previous income, increasing the home loan repayment may be more manageable before your spending adjusts to the higher salary.

You do not need to direct the entire increase to the mortgage. A balanced approach may include additional repayments, increased savings and improved superannuation contributions.

8. Review Your Home Loan Interest Rate

A lower interest rate can reduce the amount of each repayment allocated to interest.

Start by reviewing:

• Your current interest rate

• The remaining loan term

• Annual or monthly fees

• Available loan features

• Comparable home loan options

• The equity in your property

• Your current financial circumstances

You may be able to request a pricing review with your existing lender or consider refinancing to another suitable home loan.

Even a relatively small rate difference can affect the long-term cost of a large mortgage. Moneysmart notes that small differences in interest rates and costs can make a significant difference over the life of a home loan.

A mortgage broker can compare suitable options and calculate whether changing the loan is likely to provide a meaningful benefit.

9. Consider Refinancing Carefully

Refinancing may provide access to a lower interest rate, improved features or a loan structure that better supports additional repayments.

However, refinancing is not automatically beneficial.

Possible costs can include:

• Discharge fees

• Application fees

• Valuation fees

• Government registration costs

• Settlement fees

• Annual package fees

• Fixed-rate break costs

Calculate how long it will take for the expected savings to recover the switching costs. Moneysmart provides guidance and tools for comparing the potential savings and costs of changing home loans.

Refinancing may be less effective if you restart the loan over a new 30-year term and only make the new minimum repayment.

Where affordable, consider maintaining the remaining loan term or continuing to pay at least the amount you were paying before refinancing.

10. Avoid Extending the Loan Term Unnecessarily

Reducing repayments by extending the home loan term can improve short-term cash flow, but it may increase the total interest paid.

For example, refinancing a loan with 20 years remaining into a new 30-year term may produce a lower minimum repayment. However, the debt could remain outstanding for another decade if you only pay the minimum.

When reviewing a loan, consider:

• The existing remaining term

• The proposed new term

• Total estimated interest

• Whether you can maintain your existing repayment

• Your desired mortgage-free date

A lower interest rate can be an opportunity to accelerate repayment rather than simply reduce the monthly amount.

11. Keep Repayments the Same When Rates Fall

If your variable interest rate falls, your required repayment may also decrease.

Where your budget allows, consider maintaining the previous repayment amount rather than reducing it.

The difference will generally be applied toward the loan principal, helping reduce the balance sooner.

Before making decisions, check whether your lender automatically changes the repayment amount and whether you need to update your direct debit.

You should also maintain enough flexibility to manage future rate increases and household expenses.

12. Review Your Household Budget

Finding additional repayment capacity does not always require a major lifestyle change.

Review recurring expenses such as:

• Insurance policies

• Electricity and internet plans

• Streaming subscriptions

• Mobile phone contracts

• Gym memberships

• Food delivery

• Unused memberships

• Vehicle expenses

Redirecting even part of the savings toward your home loan can create a consistent additional repayment.

Avoid setting an unrealistic budget that cannot be maintained. A smaller strategy followed consistently is usually more useful than an aggressive repayment target abandoned after several months.

13. Pay Off Higher-Interest Debt

Before directing every available dollar to your mortgage, review whether you have more expensive debts.

These may include:

• Credit cards

• Personal loans

• Buy now, pay later balances

• Car loans

• Overdrafts

Home loans often have lower interest rates than unsecured debts. Reducing higher-interest debt may improve your cash flow and allow you to contribute more to your mortgage later.

Debt consolidation may be available in some circumstances, but moving short-term debt into a long-term mortgage can increase the total interest paid if repayments are not maintained at a higher level.

Obtain advice and understand the full cost before restructuring debts.

14. Maintain an Emergency Fund

Paying off your home loan faster should not leave you without accessible savings.

An emergency fund can help cover:

• Urgent home repairs

• Medical costs

• Temporary loss of income

• Insurance excesses

• Vehicle repairs

• Unexpected travel

• Increased household bills

An offset account may allow your emergency savings to reduce home loan interest while remaining available.

The appropriate amount will depend on your employment security, household expenses, insurance and access to other funds.

If you are struggling to meet repayments, contact your lender early. Financial hardship assistance may include temporary repayment changes or another agreed arrangement.

Common Mistakes to Avoid

When trying to repay a home loan faster, avoid:

• Paying every available dollar into the loan without retaining emergency savings

• Making extra repayments without checking fixed-rate limits

• Refinancing into a longer term without considering total interest

• Withdrawing offset or redraw funds for unnecessary spending

• Ignoring higher-interest consumer debts

• Paying for home loan features you do not use

• Assuming redraw money will always be immediately available

• Failing to review the loan as rates and circumstances change

Your repayment strategy should be affordable, sustainable and consistent with your longer-term property plans.

Frequently Asked Questions

Is it better to make extra repayments weekly or monthly?

Earlier repayments generally reduce the loan balance sooner, but the difference may be relatively small. Choose a frequency that aligns with your income and makes the strategy easy to maintain.

Will extra repayments reduce my minimum repayment?

Not always. Additional repayments may reduce interest and shorten the effective loan term without changing the contractual minimum repayment.

Is an offset account better than making extra repayments?

An offset account may provide easier access to savings, while extra repayments directly reduce the loan balance. The right option depends on the product, fees, access needs and future plans.

Can I make extra repayments on a fixed-rate home loan?

Some fixed-rate loans allow limited additional repayments. Restrictions and break costs may apply, so check the loan terms before contributing a large amount.

Should I refinance to pay off my mortgage faster?

Refinancing may help if it reduces your interest rate or provides more useful features. Compare the switching costs, remaining loan term and total expected savings before proceeding.

Should I use all my savings to reduce the mortgage?

Retaining an emergency fund is generally important. An offset account may allow accessible savings to reduce interest without permanently paying the money into the loan.

Review Your Home Loan With Mortgage Matrix

Paying off your home loan faster generally requires a combination of consistent extra repayments, effective use of loan features and regular interest-rate reviews.

At Mortgage Matrix, we can review your current home loan, compare suitable options and help you understand how different repayment strategies may affect the loan term and total interest.

Book an obligation-free home loan review with Mortgage Matrix and take the next step toward paying off your mortgage sooner.

This information is general in nature and does not take into account your objectives, financial situation or needs. Consider obtaining financial and tax advice before changing your loan structure. Lending criteria, interest rates, fees, repayment features and access conditions vary and are subject to change.