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

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Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment
loans.com.au Essentials - Variable (Owner Occupier, P&I)
A basic home loan with a competitive rate and low fees.
3.64% 3.66% $0 $0 p.a. 80% Go to site More info
Tic:Toc Live in Loan Variable Rate
A competitive variable rate product with low fees offered by a 100% online lender.
3.68% 3.69% $0 $0 p.a. 80% Go to site More info
Greater Bank Ultimate Home Loan - Discounted 1 Year Fixed LVR ≤85% ($150K+ Owner Occupier)
Discount off an already competitive interest rate for loans over $150k. NSW, QLD and ACT residents only.
3.49% 4.47% $0 $375 p.a. 85% Go to site More info
UBank UHomeLoan Variable Rate - Standard Variable Rate Value Offer (Owner Occupier P&I)
Combine a low variable interest rate and free redraw with no application or ongoing fees.
3.74% 3.74% $0 $0 p.a. 80% Go to site More info
Reduce Home Loans Rate Buster 100% Offset Variable Home Loan - Up to $750k (LVR <=80%)
Borrow up to 80% LVR with no ongoing fees and a 100% offset account.
3.54% 3.54% $440 $0 p.a. 80% Enquire now More info
loans.com.au Offset Variable - Up to 80% LVR (Owner Occupier P&I)
Take advantage of a 100% offset account along with no annual or application fees.
3.72% 3.74% $0 $0 p.a. 80% Go to site More info
IMB Budget Home Loan - Special LVR <=80% (Owner Occupier and Principal & Interest only)
A special limited time offer for owner occupiers. An IMB Transaction Account must be opened with this loan.
3.79% 3.84% $445 $0 p.a. 80% Go to site More info
Bank Australia Basic Home Loan - Variable (Owner Occupier)
A competitive variable rate that allows borrowers to borrow a minimum of $100,000 with a $0 ongoing fee.
3.86% 3.87% $0 $0 p.a. 80% Go to site More info
HSBC Home Value Loan - Resident Owner Occupier only
Enjoy a low variable rate with no ongoing fees and borrow up to 90% of the value of the property.
3.85% 3.86% $0 $0 p.a. 90% Go to site More info
NAB Choice Package Home Loan - 2 Year Fixed (Owner Occupier P&I) First Home Buyer Special
A special rate for first home buyers buying residential property and borrowing over $150K. 350K NAB Rewards Points offer available. Terms and conditions apply.
3.69% 4.86% $0 $395 p.a. 90% Go to site More info
St.George Basic Home Loan - Promotional Rate (Owner Occupier, P&I)
A no frills loan with a competitive rate and a maximum LVR of 95%.
3.80% 3.81% $0 $0 p.a. 95% Enquire now More info
IMB Budget Home Loan - LVR <=90% (Owner Occupier)
Get a competitive rate without features you may not use.
3.97% 4.02% $445 $0 p.a. 90% Go to site More info
ING Orange Advantage Loan - $500,000+ (LVR <=80% Owner Occupier, P&I)
A loan with no application fee and borrow up to 95% LVR.
3.74% 4.06% $0 $299 p.a. 95% Go to site More info
Newcastle Permanent Building Society Fixed Rate Home Loan - 2 Year Fixed (Owner Occupier Special Rate, P&I)
Owner-occupiers can lock in a competitive rate with no ongoing fees. Conditions apply.
3.74% 4.85% $0 $0 p.a. 95% Go to site More info
ING Orange Advantage Loan - $150,000 to $500,000 (LVR <=80% Owner Occupier, P&I)
A fully featured home loan with an offset account and discounts available. $1000 cashback offer available for loans over $300k. Terms and conditions apply.
3.79% 4.11% $0 $299 p.a. 80% Go to site More info
Mortgage House Advantage Variable Home Loan - 80 (PAYG Special No Offset)
A home loan with a competitive variable rate, limited fees and plenty of flexibility.
3.64% 3.66% $0 $0 p.a. 80% Go to site More info
Greater Bank Great Rate Discount Variable with Family Pledge Home Loan - Up to 110% LVR
Discounted rate available with family pledge loans. Family pledge loans require no LMI and no deposit. NSW, Qld and ACT only.
3.99% 3.99% $0 $0 p.a. 110% Go to site More info
Bank Australia Basic Home Loan - Special LVR <70% (Owner Occupier)
A special variable rate home loan with no application or ongoing fees.
3.74% 3.75% $0 $0 p.a. 70% Go to site More info
3.79% 4.07% $500 $0 p.a. 95% Go to site More info
Heritage Bank Discount Variable Home Loan - Special Rate Offer (Owner Occupier) New Customers Only
A low rate variable home loan offer with no monthly fees or application fee charge.
3.99% 4.04% $600 $0 p.a. 90% Go to site More info
3.78% 3.79% $600 $0 p.a. 90% Enquire now More info
3.91% 4.42% $0 $0 p.a. 95% Enquire now More info
Community First Fixed Home Loan - 3 Years Fixed Owner Occupier special offer (New Loans only)
A limited time fixed rate special with no monthly or annual fees plus a 100% offset account.
3.89% 4.97% $600 $0 p.a. 95% Go to site More info
ME Flexible Home Loan Fixed - 2 Year Fixed Rate (Owner Occupier, P&I)
No application or ongoing fees and a competitive 2 year fixed rate.
3.74% 4.81% $0 $0 p.a. 95% Go to site More info
NAB Choice Package Home Loan - 2 Year Fixed (Owner Occupier P&I)
A fixed rate package with flexible repayment options. 350K NAB Rewards Points offer available. Terms and conditions apply.
3.88% 4.89% $0 $395 p.a. 95% Go to site More info
Bankwest Equaliser Home Loan - LVR ≤80% (Owner Occupier, P&I & $200k+) new customers only
Enjoy a variable 3 year introductory rate with the Bankwest Equaliser Home Loan.
3.72% 4.19% $0 $0 p.a. 80% Go to site More info
UBank UHomeLoan - 1 Year Fixed Rate (Owner Occupier)
A one year fixed rate offer with no ongoing bank fees.
3.69% 4.15% $395 $0 p.a. 80% Go to site More info
Finsure Home Loan Deal
Enjoy a low variable rate with no application fee.
3.69% 4.03% $0 $299 p.a. 80% Enquire now More info
Greater Bank Ultimate Home Loan - Discounted 2 Year Fixed LVR ≤85% ($150K+ Owner Occupier)
Discount off an already competitive 2 year fixed rate for loans over $150k. NSW,QLD and ACT residents only.
3.69% 4.45% $0 $375 p.a. 85% Go to site More info
Connective Smart Options Basic Home Loan - LVR ≤ 70% (Owner Occupier, P&I)
A variable home loan with $0 annual or monthly fees.
3.74% 3.74% $363 $0 p.a. 70% Enquire now More info
Beyond Bank Low Rate Special Home Loan - LVR <70%
A special low variable rate for owner occupiers with 100% offset account and no application or ongoing fees.
3.83% 3.83% $0 $0 p.a. 70% Go to site More info
Newcastle Permanent Building Society Premium Plus Package Home Loan - New Customer Offer ($150,000+ Owner Occupier, P&I)
Apply for a new owner occupier loan or refinance from another lender and receive this discounted rate.
3.74% 4.12% $0 $395 p.a. 80% Go to site More info
QT Mutual Bank Mortgage Saver Home Loan
A low rate home loan with no application or ongoing fees. Note that to be eligible for this loan you must be QLD resident.
3.95% 3.95% $0 $0 p.a. 95% Go to site More info
Greater Bank Great Rate Home Loan - Discounted Variable ($150K+ Owner Occupier)
A competitive variable rate with a redraw facility. NSW, QLD and ACT residents only.
3.99% 3.99% $0 $0 p.a. 85% Go to site More info
Newcastle Permanent Building Society Fixed Rate Home Loan - 3 Year Fixed (Owner Occupier Special Rate, P&I)
A limited time fixed rate home loan with extra repayment abilities. Conditions apply.
3.79% 4.75% $0 $0 p.a. 95% Go to site More info
ME Flexible Home Loan Fixed - 3 Year Fixed Rate (Owner Occupier, P&I)
A competitive 3 year fixed rate with a redraw facility and split loan options, plus no application fee.
3.99% 4.77% $0 $0 p.a. 95% Go to site More info
Newcastle Permanent Building Society Fixed Rate Home Loan - 2 Years Fixed (Standard Rate, P&I)
Enjoy a low interest rate and borrow up to 95% (with LMI) of your property's value.
3.94% 4.88% $0 $0 p.a. 95% Go to site More info
NAB Base Variable Rate Home Loan - Owner Occupier (P&I)
A competitive no frills home loan. 350K NAB Rewards Points offer available. Terms and conditions apply.
4.17% 4.21% $600 $0 p.a. 95% Go to site More info
Newcastle Permanent Building Society Fixed Rate Home Loan - 1 Year Fixed (Standard Rate, P&I)
Investors can take advantage of a short term fixed rate with no application or ongoing fees.
3.94% 4.98% $0 $0 p.a. 95% Go to site More info
NAB Choice Package Home Loan - 5 Year Fixed (Owner Occupier P&I)
A competitive loan with flexible features. 350K NAB Rewards Points offer available. Terms and conditions apply.
4.59% 5.01% $0 $395 p.a. 95% Go to site More info
IMB Essential Home Loan - LVR <=90% (Owner Occupier)
Access to redraw facility and offset account without the annual fee.
4.19% 4.19% $0 $0 p.a. 90% Go to site More info
ANZ Simplicity PLUS Home Loan - Special Offer (Owner Occupier, P&I)
Enjoy a basic home loan with a high LVR and no application or ongoing fees.
4.03% 4.07% $0 $0 p.a. 95% Enquire now More info
Commonwealth Bank Wealth Package Fixed Home Loan - 2 Year Fixed (Owner Occupier) P&I
A package home loan with fee free extra repayments available during the fixed term.
3.99% 4.99% $0 $395 p.a. 95% Enquire now More info
St.George Fixed Rate Advantage Package -  2 Year Fixed Rate (Owner Occupier, P&I)
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% 4.98% $0 $395 p.a. 95% Enquire now More info
NAB Choice Package Variable Rate - $250k to $749,999 P&I (Owner Occupier)
A packaged low rate interest offer from NAB. Includes mortgage offset.
4.39% 4.78% $0 $395 p.a. 95% Go to site More info
Westpac Fixed Options Home Loan Premier Advantage Package - 2 Years, P&I
A low interest rate home loan with a low service fee.
3.99% 4.90% $0 $395 p.a. 95% Enquire now More info
4.39% 5.42% $300 $10 monthly ($120 p.a.) 95% Enquire now More info
Virgin Reward Me Variable Home Loan - LVR <= 80% ($750k+ Owner Occupier, P&I)
Earn Velocity points on a competitive variable rate home loan with flexible features.
3.79% 3.92% $0 $10 monthly ($120 p.a.) 80% Enquire now More info

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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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