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Should I pay off my home loan early?

By JP Pelosi and Cameron Thomson
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There are a few ways to get on top of your home loan, cutting down the time it takes to pay it off, or even to reduce the total amount of money you pay toward it over the long term.

For example, you could make a one-off extra repayment to bring down the overall loan and interest charged, or increase your monthly repayments to pay off the loan faster, or even refinance your home loan to a lower interest rate. Some people even change their monthly repayment frequency to fortnightly or weekly.

Such moves could see you pay off your loan earlier and potentially save you thousands of dollars. However, there are some questions you need to ask yourself first. Let’s get into them below.

Are there any costs to making extra repayments?

Before you decide to pay off your mortgage early, it's also important to realise that some potential costs and penalties can be involved. Not all lenders have fees on every product, but the type of interest rate your home loan has will typically be a factor.

So let's consider them both:

Can you make extra repayments on a variable home loan?

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

When you make such repayments on a variable home loan, you can chip away at the principal (borrowed amount) and reduce the amount of interest it accrues. This can save you a lot of money and should result in paying your loan off earlier.

Can you make extra repayments on a fixed home loan?

Fixed rate loans on the other hand tend to cap the amount you can repay each year, or charge you a fee for the privilege.

If you’re on a fixed-rate home loan, you should check the fine print. Fixed loan providers often put what’s known as a ‘break fee’ in place to stop borrowers from exceeding their allowed repayment ceiling before the fixed loan period ends. 

These fees can be based on:

  • the change in the cost of funds for the lender, since you took out your fixed rate loan.
  • the term remaining on your fixed rate period.
  • the amount you’re repaying.

Any fee is dependent on factors such as the home loan type, term and interest rates. Be sure to ask your lender what their rules are around extra repayments before you sign up for any loan.

Can I pay my mortgage off faster using an offset account or redraw facility?

Some home loans come with the advantage of an offset account or redraw facility, both of which can also help with a strategy of paying a home loan off early.

If you’ve made additional deposits into an offset account, for example, you’ll already be paying a lot less for your home loan. This is because extra money in an offset counts toward your mortgage and reduces the interest charged. 

In a similar way, a redraw facility gives you the ability to make extra repayments in addition to your minimum home loan repayments. The money in this facility also counts against the balance of your home loan, again reducing the amount of interest you pay.

A redraw can be handy because any additional funds can be taken out – or redrawn – if you need. 

Is there a preferred way to pay off a mortgage early in Australia?

Some proper financial advice can really help here. You’ll need to weigh up the benefit of using an offset account or redraw facility against, say, refinancing to a new home loan with a lower interest rate. Making the same repayments on a lower interest rate can be a smart move, but you might also find yourself with a new loan that doesn’t provide much flexibility to access money.

This can matter if you’re expecting some big purchases in the future - like a wedding, a renovation or school fees. For some borrowers, there’s added comfort in having access to any extra money that’s put into their home loan. So there’s no one single approach to suit everyone, it’s a decision that requires solid research and some home loan comparison.

In conclusion: Can I make extra repayments with my current home loan?

Ultimately, to pay back your home loan early, you’ll need the right home loan to do so. Remember, while many variable rate home loans allow for extra repayments, most fixed home loans do not. Where a fixed home loan allows it, there's usually a cap on how much you can make in extra repayments during the fixed period (typically applied on an annual basis).

By contrast, the right variable home loan will give you greater flexibility to make extra repayments and therefore let you to pay off your loan earlier. In light of this, a split home loan - part fixed and part variable - could also be worth considering with the right financial advice. 

If you want to know more about your options when it comes to choosing a home loan, jump over to our home loans hub for more.

If you’re ready to compare home loans right now, check out some of the top loans in the Mozo database below. 

Home loan comparisons on Mozo

Mozo may receive payment if you click the products below. We don’t compare the entire market, but you can compare more home loans here.
Last updated 27 July 2024 Important disclosures and comparison rate warning*

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    Competitive Fixed rate. Multiple offset accounts available. Borrowers can also make extra repayments. Redraw facility available. Simple online application process. 40% deposit required.

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    Get online approval from the award-winning Bendigo Bank Express Home Loan. Multiple offset accounts and redraw available. 100% offset on variable rate loans and partial offset on fixed rate. Flexible repayment options. New home loans only.

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    Initial monthly repayment
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    Competitively-priced variable rate loan. Ideal for owner occupiers and investors. No service fees to pay. Make free extra repayments and redraws. Flexible repayment schedule available.

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    Variable
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    6.13 % p.a.
    Initial monthly repayment
    $3,027
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    Refinancers or first home buyers pay no monthly or annual fees. Up to $3,000 cashback when you complete your home loan application online. $2,000 cashback on loans ≥$250K; or $3,000 cashback on loans ≥$500K. LVR ≤80%. T&Cs and credit criteria apply.

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    • Owner Occupier
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.16 % p.a.
    Initial monthly repayment
    $3,043
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    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.

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JP Pelosi
JP Pelosi
RG146
Managing editor

JP Pelosi, Mozo's Managing Editor, has 20 years in journalism, featuring in The Guardian and News.com.au. With a background in firms like CommBank and Amex, he advises on and crafts engaging financial content.

Cameron Thomson
Cameron Thomson
RG146
Money writer

Cameron, with a background in radio and degrees in creative writing and history, is RG146 certified in Generic Knowledge. He tracks savings rates and trading platforms, aiding Aussie consumers in smart investments.

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