Look, it’s a bit of a no-brainer that making extra repayments will pay off your loan faster. But hear me out! Due to the way loan amortisation works, your home loan has a shit-ton of interest in the first half of the loan’s term, and as you pay the loan off, you’ll also start to pay less interest.
Whether you’re a new homeowner or knee-deep in mortgage life, chipping away at your loan ahead of schedule can cut years off the term. Let’s break it down.
Small Extra Repayments Can Save You Big Money
Every dollar you throw at your loan above the minimum repayment goes straight to reducing the principal (the actual loan amount, not just interest). Less principal means less interest charged. It’s a compounding win, especially if you start early.
Example:
Let’s say you have a $600,000 loan at 6% interest. By making 15% extra repayments and keeping $15,000 in an offset account, you’ll smash 10 years off your mortgage.
This example assumes the rate stays at 6% for the entire loan term, but in reality, Australian home loan interest rates will fluctuate over time. Still, it gives you a good idea of the impact of extra repayments.
The Perks of Paying Extra on Your Mortgage
Save Thousands in Interest
The faster you reduce your loan balance, the less interest you pay over the life of the loan.
Own Your Home Sooner
Making extra repayments early, and regularly, will knock years off your loan term. Imagine being mortgage-free a decade earlier.
Build Equity Faster
More repayments mean more ownership of your home, giving you leverage for future investments or renovations.
More Financial Flexibility
Extra repayments give you breathing room. If your loan has a redraw facility, you can access those extra funds later in case of emergencies. Plus, it’s a great buffer against interest rate hikes.
How to Make Extra Repayments (Without Feeling the Pinch)
- Increase Your Regular Payments – Even an extra $20-$50 per week add up over time. Use this calculator to see how extra repayments can make a difference.
- Make Lump Sum Payments – Got a tax refund? Work bonus? Put it straight onto the loan.
- Use an Offset Account – Keeping your savings in an offset account reduces the interest you pay on your mortgage every day.
Check Your Loan’s Fine Print
Not all home loans allow unlimited extra repayments (especially fixed-rate loans), and some charge fees for early payments. Always check with your lender to make sure you’re not hitting any restrictions. If you have a fixed rate loan with some restrictions, you might be better off with a split home loan.
Ready to Slash Your Mortgage Faster? Let’s Talk!
Every loan (and borrower) is different, so let’s run the numbers and find the best repayment strategy for you.
Call us on 02 6188 4555 or book a free chat to see how you can fast-track your mortgage and keep more of your hard-earned cash.
Even small extra repayments can make a huge difference. Start today and get one step closer to mortgage freedom.
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