How you could pay off your mortgage faster

Four tips you can use which can help you pay down your home loan quickly.

There are so many simple ways to quickly cut down how much you owe on your mortgage beyond just making extra repayments. There are multiple features already included in your home loan that can assist you in this. If your home loan lacks these features, you may be able to refinance.

Is it possible to pay off the average home loan in 10 years?

1. Increase your repayment frequency

Make fortnightly or 'bi-monthly' payments

You really can save tens of thousands of dollars in interest charges and reduce your loan term by making fortnightly rather than the standard monthly repayments.

Here's how it works. Let's assume your monthly repayment is $1,000. Don't do any fancy calculations here. Just divide your monthly payment amount by 2 and pay this new amount on the same day every fortnight. You'll be paying $500 per fortnight.

Now, if you were to stick to your monthly payments of $1,000 you would end up paying $12,000 by the end of that year (12 months x $1,000 = $12,000). However, if you make fortnightly payments of half your monthly amount, you end up making exactly one additional payment per year (26 fortnights x $500 = $13,000).

This additional payment helps to reduce your balance faster. You could cut your loan term by as much as six years by doing this. Use our calculator below to work out the effect fortnightly or bi-monthly repayments might have on your home loan.

What about weekly payments?

Weekly payments don't accelerate the effect of bi-monthly payments, but they still put you ahead due to the way interest is charged.

Let's assume your monthly payments are still $1,000. Divide this figure by 4 to get $250 per week. Pay this amount of money on the same day every week. If you pay $1,000 per month, you'll pay $12,000 by the end of the year (12 months x $1,000 = $12,000). If you pay $250 per week, you'll pay $13,000 by the end of the year (52 weeks x $250 = $13,000).

2. Make your interest calculations work for you

Take advantage of interest calculations

The interest on your mortgage is calculated on the outstanding balance every day. This means you can reduce the amount of interest you pay overall by increasing how often you make a payment on your mortgage. Let's take a look at an example. In this scenario, you owe $300,000 and you're paying 6.06% interest. Your monthly repayments are $1,810.24.

Payment NumberLoan AmountPaymentInterest PaidBalance
1$300,000$1810.24$1515.00$299,704.76

After just one month, you've paid $1810.24 on your repayment and you've paid $1515.00 in interest charges.

Fortnightly

Let's see what happens if you pay exactly the same amount of money over the same four weeks, but you pay it more frequently. In this example we'll make exactly two fortnightly payments of $905.12 – this is exactly half of the previous monthly payment.

Payment NumberLoan AmountPaymentInterest PaidBalance
1$300,000$905.12$699.23$299,794.11
2$299,794.11$905.12$698.75$299,587.74
(totals)($1810.24)($1397.98)

By paying fortnightly, you only paid $1397.98 in interest instead of $1515.00. This is $117.02 less interest coming out of your hard earned cash. On top of this, your balance is down to $299,587.74. Of course this is $117.02 less than the previous example, as that interest saving is now paid off your mortgage balance instead.

Weekly

Let's look at how paying the exact same amount of money on a weekly basis affects your mortgage balance. Your monthly payment is still $1810.24. Divide this number by four to get $452.56 and pay this amount weekly.

Payment NumberLoan AmountPaymentInterest PaidBalance
1$300,000$452.56$349.62$299,897.05
2$299,897.05$452.56$349.50$299,793.99
3$299,793.99$452.56$349.38$299,690.80
4$299,690.80$452.56$349.26$299,587.49
(totals)($1810.24)($1397.76)

Once again, you've still paid exactly the same monthly payment amount of $1810.24 over those four weeks, so you haven't made any extra payments yet; however, the amount of interest you've paid is $1397.76 instead of $1515. This $117.24 you saved gets paid off your mortgage balance instead. This figure is only marginally higher than the amount you saved by paying fortnightly. However, this example only runs over one month. Over the term of a 30 year loan, those small savings really do add up to a lot of money.

3. Rounding up: small change counts

The vast majority of banks will allow you to nominate the amount you want to use to make each repayment. This means you don't have to pay just the minimum amount. Of course, if you don't want to stretch your budget too far you can simply round up the payment you make to the nearest $5 or $10. This makes it easier to remember and it counts as making an extra payment.

If you have a mortgage of $300,000 at 6.06% your monthly payment is $1810.24. Round this figure up to an even $1820 each month. It's only $9.76 per month extra so it won't break your budget. Yet, you'll shave 6 months off the end of your mortgage term and save $6,293.33 in interest charges. Small change has a big impact. Imagine how much more you could save and how much faster you'd repay your mortgage if you could round up that number even higher.

4. Use the features

Offset accounts

Any opportunity you have to reduce the amount of interest you're charged helps you to pay off your mortgage faster. If your home loan has the capacity to link a 100% offset account to it, it can help you pay your home loan off faster. Every dollar you leave in your offset savings account actively reduces the amount of interest you pay on your mortgage. For example, if your mortgage is $300,000 and you have $10,000 in your offset account you'll only pay interest on $290,000.

Redraw facilities

Another popular modern home loan feature is redraw, where you can withdraw money from your home loan if you have made additional repayments. This gives you the freedom to make additional repayments, without having to worry about losing access to those funds in an emergency.

You will need to make sure that your mortgage repayment plan allows additional repayments because if it is not an included feature, you will usually pay high fees each time you make an additional repayment or redraw.

Mix and match any of the above and review your own loan

The best part about mortgage reduction tips is that you have the freedom to mix and match them to suit your own budget and your own preferences. You can even put them all to good use and take advantage of the interest savings as you repay your home loan much faster.

Do some simple calculations and see what effect making a few extra repayments can make to your current mortgage. Work out how much you'll save by making your payments more frequently.

Really sit down and work out your budget to see how much extra you're able to afford. Each of these things will help you to pay off your home loan faster in the long run. It's also important to compare your options and check the market for loans that have a better rate. Refinancing your loan with another lender may help save you thousands.

Learn more about saving money on your home loan

The drawbacks of mortgage overpayments

Whether you can repay your mortgage early will also depend on whether your lender charges early repayment and overpayment fees. If you truly want to benefit from mortgage overpayments to get out of debt sooner, make sure you choose a home loan which allows unlimited additional repayments for free.

If you do have a home loan which charges fees for additional repayments, consider saving up any additional repayments and make them as one lump sum amount to lessen the fees applied. If your loan does allow unlimited repayments without a fee check to see if this feature comes with a higher interest rate. You may be smarter to look at shopping around for another loan.

You may also want to think about applying any financial windfalls to your home loan. If you get bonuses at work, you work on a commission basis, you get a generous tax bonus or gift of cash on your birthday, all of these can go towards repaying your home loan debt sooner.

Compare a selection of home loans

Rates last updated December 12th, 2017
$
Loan purpose
Offset account
Loan 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
3.65%
3.66%
$0
$0 p.a.
90%
Enjoy a low variable rate with no ongoing fees and borrow up to 90% of the value of the property.
3.64%
3.66%
$0
$0 p.a.
80%
A basic home loan with a competitive rate and low fees.
3.69%
4.86%
$0
$395 p.a.
90%
A special rate for first home buyers buying residential property and borrowing over $150K. 350K NAB Rewards Points offer available. Terms and conditions apply.
3.58%
3.59%
$0
$0 p.a.
80%
A competitive variable rate product with low fees offered by a 100% online lender.
3.62%
3.62%
$0
$0 p.a.
80%
A discounted, competitive variable rate loan with limited fees.
3.64%
3.66%
$0
$0 p.a.
80%
A home loan with a competitive variable rate, limited fees and plenty of flexibility.
3.64%
3.67%
$0
$0 p.a.
80%
A low rate home loan with no ongoing fees.
3.54%
3.56%
$0
$0 p.a.
80%
For new home buyers only. No refinance option. A low interest variable home loan with no application fee and free redraws. Offer ends 2 January.
3.65%
3.66%
$0
$0 p.a.
90%
A competitive variable rate home loan with no application fee.
3.69%
3.69%
$0
$0 p.a.
90%
A special limited time offer for owner occupiers. An IMB Transaction Account must be opened with this loan.
3.99%
4.62%
$395
$0 p.a.
80%
Fix your interest rate and pay principal and interest repayments on your investment.
3.69%
4.01%
$0
$299 p.a.
95%
A loan with no application fee and borrow up to 95% LVR.
3.44%
3.45%
$440
$0 p.a.
80%
This variable loan has a sharp rate, low fees, flexible repayment options and an offset account. This loan is available for PAYG borrowers only.
4.14%
4.14%
$0
$0 p.a.
80%
An investment home loan with competitive rate and 100% offset account.
3.74%
3.74%
$0
$0 p.a.
80%
Pay no application fee or ongoing fees with this loan.
3.68%
3.83%
$0
$10 monthly ($120 p.a.)
80%
A low interest rate home loan that allows borrowers to borrow up to 80% of the property value.
4.64%
4.01%
$0
$0 p.a.
80%
Enjoy a fast application process and flexible repayment options with this fixed rate investment loan.
3.64%
3.64%
$0
$0 p.a.
70%
A low-rate basic home loan requiring a 30% deposit.
4.09%
4.11%
$0
$0 p.a.
90%
Access a fee-free offset account and a special interest rate for investors.
4.79%
5.44%
$0
$395 p.a.
90%
Package your 4-year fixed rate investment loan and pay no application fees.
3.99%
4.00%
$0
$0 p.a.
80%
A low-fee variable rate investor loan with a fast online application process.
3.64%
4.03%
$0
$395 p.a.
80%
Apply for a new owner occupier loan or refinance from another lender and receive this discounted rate.
3.65%
4.84%
$0
$395 p.a.
90%
A 2 years fixed platinum package that has $0 application and a loan redraw facility.
3.65%
4.19%
$500
$0 p.a.
95%
Get a discounted fixed interest rate for the first 12 months while you settle into your new loan.
3.79%
4.11%
$0
$299 p.a.
80%
A fully featured home loan with an offset account and discounts available.
3.72%
3.74%
$0
$0 p.a.
80%
Take advantage of a 100% offset account along with no annual or application fees.
3.72%
3.75%
$600
$0 p.a.
80%
A maximum 80% LVR home loan with no ongoing service fees and a linked transaction account.
3.94%
4.88%
$0
$0 p.a.
90%
Enjoy a low interest rate and borrow up to 90% (with LMI) of your property's value.
3.69%
4.15%
$395
$0 p.a.
80%
A one year fixed rate offer with no ongoing bank fees.
3.97%
4.02%
$445
$0 p.a.
90%
Get a competitive rate without features you may not use.
3.99%
4.02%
$600
$0 p.a.
90%
Take advantage of a 0.60% discount on your rate, a 100% offset account and no ongoing fees.
4.09%
4.11%
$0
$0 p.a.
80%
A low variable rate loan with no application or ongoing fees.
3.85%
4.18%
$500
$0 p.a.
95%
Apply for Easy Street fixed rate home loans and get a competitive loan with a fixed interest rate.
3.96%
3.98%
$0
$0 p.a.
90%
Take advantage of a redraw facility, competitive variable rate and no application or settlement fees for a limited time.
3.72%
4.19%
$0
$0 p.a.
80%
Enjoy a variable 3 year introductory rate with the Bankwest Equaliser Home Loan.
3.84%
4.83%
$0
$0 p.a.
95%
Get a competitive 2-year fixed rate with no application or ongoing fees.
3.88%
4.89%
$0
$395 p.a.
95%
A fixed rate package with flexible repayment options. 350K NAB Rewards Points offer available. Terms and conditions apply.
4.04%
4.07%
$0
$0 p.a.
80%
Access the equity in your home with a competitive interest-only rate and no application fee.
3.97%
3.97%
$0
$0 p.a.
90%
A competitive variable rate home loan with no ongoing fees.
3.73%
3.73%
$0
$0 p.a.
70%
A special low variable rate for owner occupiers with 100% offset account and no application or ongoing fees.
$0
$0 p.a.
A basic low-rate home loan that still offers some useful features.
3.74%
3.74%
$0
$0 p.a.
95%
A low rate home loan with no application or ongoing fees. Note that to be eligible for this loan you must be QLD resident.
4.19%
4.19%
$0
$0 p.a.
90%
Access to redraw facility and offset account without the annual fee.
3.68%
3.69%
$0
$0 p.a.
95%
A no frills loan with a competitive rate and a maximum LVR of 95%.
3.64%
3.78%
$0
$10 monthly ($120 p.a.)
80%
A competitive variable rate home loan with flexible features. You can earn 30,000 Velocity Points for every $100k you borrow (for a limited time, subject to eligibility requirements).
3.87%
3.92%
$0
$0 p.a.
90%
A low rate variable home loan offer with no monthly fees or application fee charge.
3.87%
3.87%
$0
$10 monthly ($120 p.a.)
90%
Get a competitive interest rate for 3 years and a discounted variable rate when the fixed period ends.
3.69%
3.69%
$0
$0 p.a.
70%
Enjoy a low variable rate with no application and ongoing fees.
3.79%
3.80%
$0
$0 p.a.
80%
A competitive rate with no ongoing monthly fees or application fees.
3.99%
4.03%
$0
$0 p.a.
95%
Enjoy a basic home loan with a high LVR and no application or ongoing fees.
3.85%
4.95%
$0
$395 p.a.
95%
A discounted package rate for owner occupiers with the ability to package a Qantas rewards earning Amplify credit card. $1,500 cashback available for refinancers. Conditions apply.
3.99%
4.99%
$0
$395 p.a.
95%
A package home loan with fee free extra repayments available during the fixed term.
4.39%
5.42%
$300
$10 monthly ($120 p.a.)
95%
Lock in a competitive fixed rate for 3 years.
3.69%
4.03%
$0
$299 p.a.
80%
Enjoy a low variable rate with no application fee.
3.59%
4.42%
$0
$0 p.a.
95%
This competitive introductory rate is a limited time offer for new owner-occupiers
3.68%
3.69%
$600
$0 p.a.
90%
Get a low variable rate along with some important basic features.

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4 Responses

  1. Default Gravatar
    CarterAugust 24, 2015

    Hey,
    I am doing a maths assignment and have been asked
    “the effect that the frequency of the repayment (weekly, fortnightly, monthly) can have on the total amount repaid”
    Could you please help me answer this :)

    Cheers

    • Staff
      BelindaAugust 25, 2015Staff

      Hi Carter,

      Thanks for your enquiry.

      On this page you can read our review about fortnightly vs monthly repayments and you can use our bi-monthly calculator to estimate the interest and time saved on a mortgage based on different repayment frequencies.

      Thanks,
      Belinda

  2. Default Gravatar
    RussellAugust 23, 2015

    How does the calculator know how much I am currently paying monthly

    • Staff
      MarcAugust 24, 2015Staff

      Hi Russell,
      thanks for the question.

      This calculator uses an estimate on what loan repayments would be for the figures entered into it. As such it should be used as an estimate only.

      I hope this helps,
      Marc.

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