How to manage your home loan repayments

Rates and Fees verified correct on December 8th, 2016

Managing your home loan repayments is crucial to successfully paying off your mortgage.

Repayments

Home loan repayments are the regular installments you make to pay off your mortgage over time. Repayments are typically made on a monthly basis; however, many loans allow you to make more regular repayments, including weekly and fortnightly, to pay off your loan sooner.

Properly managing your repayments can not only help you stay in control of your home loan, but it can also help you reduce the amount of interest you pay over the life of the loan and get you out of debt sooner than you thought. Take a look at how repayments work and some of the ways you can maximise your repayments.

How do you make home loan repayments?

The way you make repayments varies depending on what financial lender you take your home loan out with. Check your statement for a range of methods that you can use to make repayments. The most common ways to make repayments include:

  • Online banking. If you have a transaction account opened up with your home loan lender, you can make an internal funds transfer to make repayments. If you don’t you can simply transfer funds from your bank account.
  • At your local branch. Another way to make a repayment is to go straight into your local branch and make an over the counter deposit right into your home loan.
  • BPAY. This is one of the more popular ways to make a repayment. BPAY is simply an electronic bill payment system. You can make a BPAY payment through your online banking portal by quoting the biller code and your home loan account number, or over the phone.
  • Direct debit. If you don’t have an account opened up with your lender, you can set up a regular repayment from your transaction account to the financial lender.

How do repayments work?

If you have a principal and interest home loan, your repayments are split into paying off the interest component of your home loan, with the remainder going towards the actual loan amount (called the principal). As your principal gets smaller, so too does the amount of interest due, meaning towards the end of your loan, even though your repayment stays the same, more of your payment is going towards your principal rather than the interest.

If you have an interest-only loan, all of your repayments each month only go towards paying the interest due. This means you repayments would be smaller than the equivalent principal and interest loan, but your loan amount would never be paid off.


Top ways to maximise your repayments

Make additional repayments

One way to maximise your repayments is to make additional repayments where possible. If you pay extra each time you make a repayment, you can pay off your loan sooner. Even if it’s just an extra $50 each repayment, it will significantly reduce the amount of interest you have to pay over the life of the loan. Keep in mind that some lenders may charge fees for additional repayments, set a limit on the amount of extra repayments you can make, or won’t allow you to make them at all, so check the limitations that your lender has first.

Another way to maximise your repayments is to make bi-monthly repayments instead of monthly repayments. As there are 26 fortnights in a year, you will essentially be making on additional monthly repayment each year, helping you to pay off your loan sooner.

Lump sum payments

Another way to maximise your repayments is by making a lump sum payment. If you run into some extra money during the year —although this may not be the most exciting way to spend your money—putting it towards your home loan will assist you in paying off your loan off sooner and reducing your interest. A lump sum repayment works by putting a large sum of money towards your home loan. You can use our lump sum calculator to get a better understanding of the positive impact a lump sum repayment will have on your home loan.

Open an offset account

Opening up an offset account is another effective way to manage your home loan repayments and repay your loan sooner. An offset account is when a transaction account is opened up and linked to your home loan. The funds in your transaction account are offset against your home loan balance. For example, if you have $10,000 in your transaction account, and have a $300,000 loan with the bank, you will only pay interest on a $290,000 loan. An offset account reduces the amount of interest you pay and can assist you in paying off your home loan sooner than anticipated.

Home loans with an offset account available

Consider refinancing

Another way to maximise your home loan repayments is by refinancing your home loan to one with a lower interest rate. This simply involves hunting for a lower interest rate and refinancing your home loan with a lender who can provide you with a better deal. Refinancing your home loan has the potential to save you money in interest and potentially get a home loan with more features. However, it’s important to mention that sometimes refinancing your loan can lead to higher costs due to high exit fees, application fees and other refinancing costs from your current home loan. It’s essential you do your research before deciding to refinance your home loan.

Even if the costs of refinancing prohibit you from finding a better loan, sometimes it’s a good idea to tell your existing lender you’re thinking of refinancing, to see if they can offer you a better rate.

About refinancing


Your home loan is one of the biggest costs you will bare in life so it’s important to properly manage your home loan repayments. By managing your home loan repayments effectively you could pay less interest and might be able to pay off your loan sooner than anticipated. There are many ways you can maximise your home loan repayments, each with their own unique advantages. Take control of your home loan and learn how to manage your repayments.

Marc Terrano

A passionate publisher who loves to tell a story. Learning and teaching personal finance is his main lot at finder.com.au. Talk to him to find out more about home loans.

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