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What happens if I pay off my mortgage early?


Paying off your mortgage early may help you to rid yourself of debt sooner, save you interest and let you finally live in a house that is actually your own without having to worry about another home loan repayment ever again. Sounds pretty good right?

Well, there are a few different ways to take time off your loan like making a one-off extra repayment, raising your monthly payment amount or even refinancing your loan to a shorter term if possible (not to mention one with a better rate). Not only could these actions help you take years off the life of your loan, they could potentially save you thousands of dollars in interest!

While paying off a home loan early certainly comes with a lot of positives, it may not be the most money-savvy option for everyone though. 

So before deciding whether or not to begin the journey of paying off your mortgage early, there are a few questions you’ll want to ask yourself.  

Is it worth paying more on your mortgage?

Paying off your mortgage early seems like the ideal thing to do. The quicker you do the less interest rate you'll have to pay in the long run. Who doesn't love saving money? However, remember that when you pay off your home loan early you might run into some exit fees. Some lenders actually penalise you for paying off your mortgage early and it can run you a couple of thousands of dollars.

Related: How to pay off your home loan faster and save money

If you're looking for ways to quickly pay off your loan, maybe consider refinancing your loan to shed some years off your loan term.

Do I have other debt?

How quickly you can pay off your mortgage will depend on your financial situation. Having a financial plan that prioritises debt can be essential to making smart money decisions because in most situations where you have multiple types of debt, your mortgage will generally have one of the lower interest rates.Having a financial plan that prioritises debt can be essential to making smart money decisions because in most situations where you have multiple types of debt, your mortgage will generally have one of the lower interest rates.

Related: 8 dos and don’ts of debt consolidation

That doesn’t mean you should neglect your home loan, or stop making your minimum repayments, but it could make targeting your debt with the highest rate the smartest course of action.


Some of the other forms of debt which may be worth prioritising over extra home loan repayments include:

  • Car Loans (Rates typically range from 4.00% - 11.00%)
  • Credit Cards (Rates typically range from 8.00% - 24.00%)
  • Investor Home Loans (Rates typically range from 2.50% - 6.00%)
  • Personal Loans (Rates typically range from 4.00% - 16.00%)

And aside from making repayments, there may be other options to tackling these kinds of debt including debt consolidation loans, refinancing your existing loan or balance transfer credit cards. Keep in mind though, balance transfer offers are temporary and interest rates tend to spike after the deal is over.

Fees and Penalties for paying off your mortgage early

Before you decide to pay off your mortgage early, it's important to keep in mind that some potential fees and penalties can be involved. While not all lenders have these fees, you might find that it depends on the kind of rate that your loan is.

If you’re on a fixed-rate home loan, then you may have to pay a break fee. Basically, if you try to pay off your loan (or switch to a new loan) before the fixed term is finished, then you’ll have to pay extra. What you’ll actually pay is entirely dependent on factors such as the loan term remaining and interest rates.

Is it worth keeping my home loan active?

It may sound counterintuitive, but you might want to consider holding off from paying your mortgage early. One reason would be because of the fees mentioned before, but there’s another reason it could be advantageous.

If you’ve made additional repayments into an offset account or redraw facility, you’ll already be paying a lot less for your home loan. What’s more, most of the time this money doesn’t need to stay committed. This means that, over time, you’ll be able to dip into these savings should you need to fund renovations or purchase a new vehicle. 

Of course, you’ll need to weigh the benefit of keeping your home loan active against any annual fees and interest you’ll need to pay.

Will making extra repayments leave me short of cash?

Have you recently come into a little extra cash or secured a great new job with a way better salary? Contributing more towards your home loan can certainly be a great option, but throwing everything at your mortgage may not be the best idea if you - particularly if you end up needing that money later on.

Life can be unpredictable, so having an easily accessible safety net like an emergency fund could be just as important as paying off your loan.

Related: Is it better to pay off my debt or grow my savings?

Similarly, if you’re expecting some big purchases in the future - like a wedding, a renovation or school fees - prioritising having the savings ready to pay for them may be a better option than paying extra towards your mortgage - especially if it saves you from going into debt.

However, that’s not to say that you can’t have the best of both worlds. If your current loan doesn’t have them, refinancing to a home loan with features like a redraw facility or an offset account could give you the flexibility of paying more towards your mortgage while still having access to that money should you need it down the track.

Can I make extra repayments with my current loan?

In order to pay back your home loan early, you’ll probably want to take advantage of a home loan with an extra repayments facility. It is one of the most popular features for borrowers who are looking to take out a mortgage, as it gives them the option to speed up the process of paying off their loans.

The good news is that extra repayments are a relatively common feature of both fixed and variable rate home loans, and oftentimes they’re available to be used fee-free! 

But do keep in mind that they are not always unlimited. That’s because some home loans with an extra repayment facility have monthly or annual caps which limit the additional repayments you’re able to make.

Want to know more about your options when it comes to choosing a home loan? Jump over to our home loan hub for more articles, guides, videos and tips to help you find the information you’re looking for. Or if you're looking to pay off your mortgage early, check out our home loan guides.

Cameron Thomson
Cameron Thomson
Money writer

Cameron has a Bachelor of Creative Writing and History, and a background in broadcast media from his time at 2SER Radio. This diverse set of skills has informed his analytical yet creative approach to dissecting financial data and uncovering long-term trends in consumer finance. Cameron is RG146 certified for Generic Knowledge and keeps a keen eye on current and historical deposit and savings rates on the Mozo database. Cameron is also interested in tracking the investment space, particularly share trading platforms, to help Aussie consumers save and invest their money more wisely.