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

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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.

Compare variable rate home loans - last updated 27 May 2024

Search promoted home loans below or do a full Mozo database search. Advertiser disclosure
  • Basic Home Loan

    Owner Occupier, LVR<60%, Principal & Interest

    variable rate
    comparison rate
    Initial monthly repayment
    6.14% p.a.
    6.16% p.a.

    Enjoy a low rate home loan with $0 application fee and $0 ongoing fees. Flexibility to split your loan and set different repayment types. Fee free redraw from your loan using online banking. Flexible ways to repay. 40% Deposit required.

    Compare
    Details
  • Discount Variable Home Loan

    Owner Occupier, LVR<70%

    variable rate
    comparison rate
    Initial monthly repayment
    5.99% p.a.
    6.01% p.a.

    A low rate home loan for owner-occupiers packed with great features including unlimited extra repayments, free online redraw, no application or monthly admin fees. Rate will vary depending on LVR. Winner of a Mozo Experts Choice 2024 Low Cost Home Loan Award^

    Compare
    Details
  • Elevate

    Owner Occupier, Principal & Interest, <80% LVR

    variable rate
    comparison rate
    Initial monthly repayment
    6.09% p.a.
    6.20% p.a.

    Get competitive rates on loan terms of 5 to 30 years with the Aussie Elevate Home Loan. Structure your loan with up to five splits. Make additional repayments (T&Cs apply). Offset accounts available. Unlimited redraw using your online banking account. Choose from weekly, fortnightly or monthly payments For loan amounts from $10,000 to $5 million.

    Compare
    Details
  • Mortgage Simplifier

    LVR<80%, Owner Occupier, Principal & Interest

    variable rate
    comparison rate
    Initial monthly repayment
    6.14% p.a.
    6.17% p.a.

    Get a competitive variable rate with ING’s Mortgage Simplifier. Free extra repayments, no monthly or annual fees. Freedom to make free extra repayments or redraws.

    Compare
    Details

* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

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