How to pay off a home loan in 10 years

Is it possible for the average Australian to pay off a mortgage in 10 years?

10yearmortgageThe great Australian dream of owning your own home is something that many of us strive for, but in reality, most of us settle with a big fat 30-year mortgage. It doesn’t have to be that way though. You can save thousands of dollars and years off your home loan with these tips and expert advice.

Did you know that the average Australian mortgage in 2014 was just under $430,000? These figures released from the AFG June Mortgage Index in June 2014 show that the average mortgage price is down slightly but New South Wales still the most expensive state with an average mortgage price of $524,009.

Speaking of averages, according to the ABS (Australian Bureau of Statistics), the average annual income for adult full-time workers in Australia is $84,661.

  • Figures correct as of November 2017.

Australia is renowned for its high property prices and in fact, our housing price-to-income ratio is among the worst in the world. While this may scare some out of the market, credit rating agency Fitch has determined that our economy is one of the strongest in the world, keeping mortgages affordable.

So maybe the real question isn’t our capacity to buy but our priorities.

Is paying off your mortgage really a priority?

The increased interest in creative mortgage options, like offset accounts, points to the fact that Australians definitely want to pay off their home loan sooner. Sooner is a relative term, with many of us happy just to know we’re shaving some interest off somewhere along the line. With so many competing investment options and strategies – as well as our growing battle with credit card debt – is our mortgage really what we should be focusing on?

And what about diversification? It would seem that investing and paying off our mortgage are on different sides of the coin in this priority debate. On the one hand, we hear about the potential returns available on the stock market or in the property market and the opportunities for tax deductions. On the other side, many of us feel too overwhelmed to consider these options when we consider the size of our mortgage and the reality that we’re barely meeting those repayments on a budget that is in desperate need of an overhaul.

Paul Wilson

  • Paul is the Founder and CEO of Educating Property Investors and We Find Houses.

According to Paul Wilson, property coach and CEO of Educating Property Investors, it doesn’t necessarily have to be one at the expense of the other. “Most of my clients come to me with the aim of creating wealth for their retirement rather than paying off their home loan. What I have to teach them is the priority of paying off bad debt like their own house first. Wealth in retirement is an added bonus that naturally happens on the side.”


Michal Bodi

  • Michal is a senior financial planner and financial coach with Sydney Financial Planning.

“Owning our own home is more of a cultural priority rather than an investment priority,” says Michal Bodi, senior financial planner with Sydney Financial Planning. If it’s a priority however, it makes sense to pay it off as quickly as possible because the average mortgage can end up costing homeowners up to $1,000,000 after interest and fees.

How can you do it?

If there were a magic bullet for achieving financial freedom, everyone would be enjoying the fruits of a mortgage free life. Paying off your mortgage in less than half the average time can definitely be done but there’s no cut and dried way to do it:

1. Budget overhaul

According to Bodi, the budget is the centre of the universe for financial planners. “Many people think ‘budget’ as a dirty word because it is confronting but I like to think of it as an elimination of waste rather than deprivation. It helps us see values and patterns of behaviour so we can build a strategy and plan around that.”

American mortgagee Adam Hatter made headlines last year when he shared exactly how he and his wife paid off their $157,000 mortgage off in just under five years. In a simple but brutal strategy, the Hatter’s refinanced their mortgage and then ruthlessly attacked their budget. They paused their savings plans, wore op-shop clothes, rationed their utilities and re-evaluated their monthly bills, then put everything extra onto their mortgage. While their mortgage amount is less than half of what we are up for in Australia, we can still take some inspiration from their strategies and determined effort.

2. Mortgage options

It’s quite likely that the mortgage product you are currently paying off is not the best one available to you. You can save thousands of dollars off your mortgage by:

  • Refinancing to a lower interest rate or signing up for a package that gives you a discount.
  • Dividing your monthly payment into two and paying it every two weeks – you will effectively make an extra payment each year as there are 26 fortnights in a year, which can shave years off your loan.
  • Using an offset account effectively. Instead of having separate savings accounts, put all of your money in your offset account and pay less interest on your mortgage balance when it is calculated daily.
  • Repaying more than the minimum. When you pay more than the minimum repayment, more goes straight to the principal of the loan and helps pays it off quicker.
  • Checking the fees and charges associated with your loan. Everything adds up and you want to make sure you know what you are up for if you refinance or repay your loan early.

3. Leveraging

An alternative option that homeowners have to pay their home loan off sooner is investing and using the profits to pay off their home loan. Investments could be anything from investing in shares on the stock exchange or in more property. Paul Wilson, of Educating Property Investors, believes that real estate investment properties can work on any budget and help people pay their home loans off much faster, “You do need to be a good custodian of your money but you also have to be financially efficient and leveraging is one way of doing this.”

4. Team work

Work with a team of professionals such as financial planners, mortgage lenders and brokers, and investment real estate specialists to educate you on your options, come up with a strategy and help you achieve your goals.

These more realistic options have a few things in common including big decisions, determination and some sacrifice, but most importantly, they all use strategy. Having a clear direction of where you are going and the conviction to keep heading in that direction is vitally important in paying off your mortgage in ten years or less. As always, success is found not just in knowing this information but actually doing it.

What factors need to be taken into account?

The ability to pay your mortgage off so much sooner often depends a lot on your plan and strategy. Other factors that come into play include:

  • Your income. While there is a lot that an average, full time worker in Australia can do with their income of $72,800 to help pay off their mortgage sooner, a dual income or high-income earning family would be better positioned to make this a reality.
  • The location you have bought in. The average house prices in Sydney are much higher than many areas of rural New South Wales and can increase your mortgage significantly and therefore your options and ability to pay it off more quickly.
  • Other debt. In Michal Bodi’s opinion, “Wealth building is a false sense of productivity if debt consolidation and elimination hasn’t been addressed first.”
  • Your values and goals. Whether your motives for paying off your home loan are to live more simply and cut back at work or kickstart your investment portfolio, your values and goals will definitely influence your strategy. Risk takers and big picture people might be more comfortable looking into investment strategies, whereas those who like to keep things simple, may want to focus primarily on budgeting.

So how would you actually pay off a home loan in 10 years?

Let's look at a case study to see if it would be possible.

Tim and Fiona have decided to bite the bullet and get out of debt. Their goal is to pay off their mortgage in 10 years. Their first step is to look at their mortgage:

They have a home loan of $430,000 on a 30-year term with an interest rate of 6% (we'll use this as an average rate for the purposes of this example) that they pay monthly. To pay their loan off in 10 years their repayments would have to rise dramatically and they would also have to refinance to a lower home loan rate.

Mortgage term (years) Monthly repayments Interest paid on loan Savings
30 years at 6% $2,586 $500,984 $0
10 years at 5.5% $4,675 $130,965 $320,852

As you can see, Tim and Fiona’s monthly repayments will have to almost double to pay off their home loan in 10 years in addition to a 0.5% rate cut.

How could they afford these extra repayments?

In one word: budgeting. Look below to see how they would rejig their finances.

Category (per year) Old budget New budget
Income (take home) +$116,000 +$126,000
Utilities -$14,120 -$13,520
Mortgage -$31,032 -$56,100
Insurance and financial -$10,560 -$7,940
Groceries -$15,080 -$13,520
Personal and medical -$9,120 -$6,160
Entertainment and eating out -$10,100 -$8,280
Transport and auto -$9,920 -$9,920
Children -$11,960 -$9,560
Left over money $4,108 $1000

After carefully investigating their expenses, Tim and Fiona were able to find a way to make some extra income, redistribute money assigned to saving and investment accounts, as well as slash expenses in a couple of key areas.

Before looking at other creative options Tim and Fiona have worked out that they can afford to make significant extra repayments on their loan, save over $300,000 in interest payments and realistically be debt free in the foreseeable future.

What can you do once the mortgage is paid off?

TitleFor those in the enviable position of living debt free, a whole new question arises: what now?

You may enjoy the opportunity to choose the best schools for your kids, extended holidays and kick back your hours at work or you could re-evaluate and come up with a new financial goal.

Bodi recommends revisiting your financial plan whenever your situation changes significantly. By working with a financial planner or money coach, you can come up with a new strategy. Commonly, people take that same amount they were paying on their mortgage and start building a more diversified investment portfolio.

Paying off your mortgage in ten years is possible for some Australians. There are a number of strategies you can employ to achieve that goal and different factors that will affect how you get there but having a strongly defined goal and plan in place is the first and most important step.

Refinancing home loans comparison

Rates last updated October 22nd, 2019
Loan purpose
Offset account
Loan type
Repayment type
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Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
$0 p.a.
Get a low interest rate loan with no ongoing fees. Plus you can make extra repayments and free redraw online. Available with just a 10% deposit.
$0 p.a.
Owner occupiers looking to refinance can get one of the lowest rates in the market with this variable rate mortgage. $0 application fee and $0 ongoing fees. Refinancers only.
$0 p.a.
This rate will drop to 2.84% p.a on 29 October 2019 for new and existing customers. Enjoy flexible repayments, a redraw facility and the ability to split your loan. Plus, pay no application or ongoing fees.
$10 monthly ($120 p.a.)
Buy your home and lock in a low rate for the first two years. Available with a 10% deposit. Earn Velocity Frequent Flyer Points at settlement, monthly and every three years, plus extra bonus points for a limited time.
$0 p.a.
Athena offers one of the lowest rates in the market for investors looking to refinance their mortgage. No ongoing fees and no application fee. Principal and interest repayments. Refinancers only.
$10 monthly ($120 p.a.)
This flexible, competitive variable rate mortgage comes with a redraw facility. Eligible borrowers can earn Velocity Frequent Flyer Points, plus extra bonus points for a limited time.
$0 p.a.
Fix your mortgage for 1 year with a very competitive rate and no ongoing fees.
$395 p.a.
A package loan that offers discounts and a 100% offset account.
$0 p.a.
Get a competitive 2-year variable introductory rate from BankVic and pay no application fee for a limited time. This loan is only available for eligible Victoria police, emergency services and health employees.
$0 p.a.
Fix your rate for the first two years with this competitive, low-fee loan. Includes a 100% offset account. Get this loan with a 5% deposit.

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Logo for UBank UHomeLoan Variable Rate - Discount offer for Owner Occupiers (*now 3.09%, drops to 2.84% on 29 Oct), P&I $200K+
UBank UHomeLoan Variable Rate - Discount offer for Owner Occupiers (*now 3.09%, drops to 2.84% on 29 Oct), P&I $200K+

Take advantage of a low-fee mortgage with a special interest rate of just 2.84% p.a. and a 2.84% p.a. comparison rate.

Logo for Athena Variable Home Loan - Refinance (Owner Occupier, P&I)
Athena Variable Home Loan - Refinance (Owner Occupier, P&I)

Owner occupiers looking to refinance can get one of the lowest rates in the market with this variable rate mortgage. $0 application fee and $0 ongoing fees. Refinancers only.

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Virgin Reward Me Fixed Rate Home Loan - 2 Year $300k+ Special offer (Owner Occupier, P&I)

Buy your home and lock in a low rate for the first two years. Available with a 10% deposit. Earn Velocity Frequent Flyer Points at settlement, monthly and every three years, plus extra bonus points for a limited time.

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