Mozo guides

How to pay off your home loan faster: Our tips to get ahead of your mortgage

A mature-aged couple using a laptop and smiling.

Paying off your mortgage ahead of time can feel like a daunting task, but there are ways to pay down your home loan faster – and doing so can save you thousands in repayments.

Right off the bat, we recommend you compare home loans when you’re looking to spend less on your mortgage, though other adjustments such as increasing how often you pay your home loan can also benefit you greatly.

Why pay off your home loan faster?

The biggest benefit of paying off your home loan early is that you’ll spend less money on interest. 

“The sooner you can make progress in paying off your mortgage the less interest you will pay,” says Mozo’s financial services specialist, Peter Marshall.

“Even paying a little extra now could save many thousands of dollars over the life of your loan.”

How to pay off your home loan faster

There are simple adjustments you can make to help pay off your home loan early and become debt-free sooner than you expected – here are some methods to consider.

Increase your repayment frequency

When you first sign up for a home loan, it’s likely you’ll be making monthly repayments. But if you increase your repayment frequency to pay your mortgage weekly or fortnightly, you can slash the amount of interest you’ll pay over the course of your loan.

This is because the amount of interest you’re charged is calculated as a percentage of your remaining balance.

So, the sooner you pay off your principal – the non-interest part of the loan – the better.

Going this route means you’ll 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.

Marshall says there are a few ways to start knocking down the amount you owe through increasing your repayment frequency.

“First, if you get paid more regularly than monthly, you might be able to make your payments sooner, and this can cut down the interest by a little each month which will mean that more of your repayments can go toward reducing the size of your loan,” he says.

“The other is if you can afford to keep your monthly repayment level, but make that payment every four weeks instead of monthly, that will mean making an extra repayment every year which can be a great way to slash the size of your loan faster.”

How it works

A borrower with a $500,000 home loan with an interest rate of 6.75%† will have monthly repayments of $3,455 and pay $536,367 over the life of the loan.<br><br>By increasing payments to fortnightly instalments of $1,727.50, the total interest would be $429,240 – that’s a massive saving of $107,127 over the life of the loan.

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.

If you formally request the change, your lender will likely recalculate your repayments in such a way that could see you pay more interest over time – avoid this by voluntarily increasing your repayment frequency instead.

Make extra repayments

If you can’t commit to paying off your home loan in weekly or fortnightly instalments, consider making extra repayments when you can. These can be anything from a large lump sum you receive as an inheritance or a smaller amount such as your yearly tax refund.

How it works

If a borrower with a $500,000 loan over 25 years has a variable rate of 6.79% p.a. – over 25 years, the borrower will pay $1,040,159 for their home loan.<br><br>However, if you receive an $80,000 inheritance five years into your home loan, this will cut 6 years off your 25-year term, and saves you a whopping $171,491 in interest. Note this calculation assumes you maintain the same repayment amount.

You can work out how a lump sum will impact your mortgage repayments by using our extra home loan repayments calculator.

Use an offset account

An offset account is a transaction account that’s linked to your home loan, and it can be beneficial because any money in your offset account is subtracted from how much you owe on your home loan.

In other words, an offset account ‘offsets’ the total balance of your home loan and reduces the amount of interest you’ll need to pay – this can allow you to pay off your home loan faster by allowing you to eat away at your principal more efficiently.

Mozo’s Home Loan Report for 2024 found that 46% of borrowers don’t have a home loan with an offset account, so there’s a big opportunity to save here.

Just keep in mind that you may be charged a fee to use a home loan with an offset account.

How an offset works

Let’s say you owe $500,000 on your home loan and you have $50,000 in an offset account – your lender will only charge you interest on $450,000.

A graphic showing how offset accounts work

Check your interest rate regularly

You should compare home loans regularly to help ensure you’ve got a competitive interest rate over the entire life of your loan. This is especially important in a changing interest rate environment, meaning you could potentially check your rate against the competition each year.

Mozo’s Home Loan Report found that 20% of borrowers in Australia hadn’t compared their rate since first getting their home loan, and crucially, those who regularly compared were more likely to have a lower interest rate.

In addition to your interest rate, you might also want to make sure you’ve got access to the features you want, and aren’t spending money on the ones you don’t need. Some to keep in mind include:

  • Offset account
  • Redraw facility
  • Extra repayments
  • Repayment holiday.

If you find a lower interest rate or a home loan feature you want, ask your current lender if it can be matched. If not, it might be time to refinance your home loan.

How refinancing works

Say you have a $500,000 home loan you’re paying back over a 25-year term, and you’re with a Big Four bank, which has an average variable rate of 7.18%††.<br><br>If you were to refinance to the lowest rate in Mozo’s database of 5.89% (at the time of writing) you could save $404 a month, or a massive $121,064 in interest over the life of the loan.

Curious to see how much you could save by switching home loans? Go to our home loan comparison calculator.

Pay principal and interest

If you want to pay off your home loan faster, it’s important that you’re paying off both the principal and interest.

An interest-only home loan is likely to temporarily lower your mortgage repayments, but it’s not reducing the principal part of your loan, which is the amount you’ve actually borrowed.

How to pay off your home loan faster: FAQs

Can I make extra repayments on a variable home loan?

Yes, most variable rate loans let you make unlimited free extra repayments.

Can I make extra repayments on a fixed home loan?

Fixed rate home loans can allow you to make extra repayments, though there may be limits to how much extra you can repay each year, or you may be charged a fee for the privilege.

Can I withdraw my extra repayments?

It depends on the terms of your loan. If yours includes home loan redraw, you’ll be able to withdraw extra repayments, though there may be limits to how much can be taken out.

†Based on the average variable rate, owner-occupied home loan, paying principal & interest on a $500,000 loan over 25 years, at 80% LVR. Correct as at 15 October, 2024.

††Based on the average Big Four variable rate, owner-occupied home loan, paying principal & interest on a $500,000 loan over 25 years, at 80% LVR. Correct as at 15 October, 2024.

Calculators

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Jasmine Gearie
Jasmine Gearie
RG146
Senior Money Writer

Jasmine joined Mozo from TechRadar Australia, where she covered the telco and NBN sector for over four years. She’s now turned her attention to the world of personal finance, with a special interest and expertise in home loans and savings accounts. Jasmine studied a Bachelor of Communication (Journalism and Public Relations).


* 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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