How to make extra repayments on your mortgage and save $100,000

We often suggest borrowers compare home loans when they’re looking to spend less on their mortgage, but there is one simple adjustment you can make that could save you $100,000 on your home loan repayments.

The secret is making extra repayments, such as upping your home loan repayment frequency from monthly to fortnightly instalments, which can slash the amount of interest you’ll pay over the course of your home loan.

The Mozo Home Loan Report for 2024 found it’s possible to save over $100,000 in interest on a 25-year loan by making extra repayments.

For example, consider a $500,000 loan over 25 years at the average variable rate in the Mozo database of 6.82%† – a borrower making monthly repayments of $3,477 will ultimately pay $542,856 in interest over 25 years.

†Based on the average variable, owner-occupied home loan, paying principal & interest on a $400,000 loan over 25 years, at 80% LVR. Correct as at 5 April 2024.

But increasing your payments to fortnightly instalments of $1,738.50 – that’s half of the original monthly payment of $3,477 – means the total interest at the end of your loan could be $431,806. That gives you a massive saving of $111,050 over the life of the loan.

Pay more now, spend less later

The catch with going this route is that you will spend a higher amount on your mortgage repayments in a shorter time frame, but you’ll benefit from a significant saving in the longer term.

Increasing your repayment frequency can mean you’ll spend less on interest over time, because the interest charged is calculated as a percentage of the remaining balance. The sooner you can pay off your principal – the non-interest part of the loan – the better.

Repayment frequency vs extra repayments

Here’s where things get a little complicated. In order for this tip to work successfully, you’ll likely need to voluntarily make extra home loan repayments every fortnight – not request that your bank formally updates your repayment frequency.

Why is this? Well, let’s say your mortgage repayments are $1,000 each month – that equals $12,000 every year. If you instead pay $500 every fortnight, you’d then pay off $13,000 in a year (there are about 26 fortnights each year).

On the other hand, let’s suppose you request that your lender switches you to fortnightly repayments. It’s highly likely that instead of halving the monthly amount, your lender will multiply your monthly repayments by 12 ($12,000) and then divide that amount by 26 ($461.53).

In this scenario, you’re actually worse off and could end up paying more interest over time, which is why it’s important you opt to make voluntary extra repayments instead. We have an in-depth guide to home loan repayment schedules if you want to learn more.

Does your lender offer extra repayments?

Knowing that extra repayments are one way to bring down your home loan faster, you’ll need to ensure your lender lets you do this with no strings attached.

Of all the home loans in our database, every variable rate home loan allows for extra repayments, but the same can’t be said for fixed rate home loans.

While most fixed home loans do allow you to make extra repayments, a limit often applies. For example, extra repayments on fixed rate home loans can come with a yearly limit, or be restricted in the extra amount you can pay off.

If you’ve got the financial means to make extra repayments on your home loan and your lender permits it, this is just one method you can use to pay off your mortgage faster.

Be sure to keep this tactic in mind when comparing the variable rate home loans below.