Reduce your home loan debt

Don’t get stuck paying interest that doesn’t need to be paid, find out how to reduce your home loan debt.


Your home loan interest can be one of the biggest expenses you incur over your lifetime. Fortunately, there are ways that can help you reduce your home loan debt by paying off your loan sooner and avoiding interest.

The main methods include developing a budget, making extra repayments, bi-monthly repayments, lump sum repayments, offset accounts and refinancing. Using one or a combination of these methods can assist you in reducing your overall debt and living a life free from your home loan.

number 1

Write a budget

Writing a budget is a great step in the right direction to getting your finances under control. It’s not always easy sticking to a budget, but by writing one down, you will be that little bit more inclined to keep to it.

Start by writing down your income and then determining all your expenses. From this you can see the difference between them, and see if there’s any extra funds you can be putting towards your mortgage. You may also decide to work extra repayments into your budget on top of your regular repayments.

One of the best ways to stick to a budget is to be realistic about it. Don’t put pressure on yourself to make any repayments you won’t be able to make, even if they are in the budget. And ensure you leave yourself some room in the budget to enjoy or treat yourself from time to time.

number 2

Extra repayments

Adding extra money on top of your regular repayments is another effective way to reduce your home loan debt. Even by adding $20 onto your regular repayments you can start by reducing the life of your loan. If you have any extra money lying around when it’s time for repayments, try and add it towards your home loan debt to avoid paying additional interest. Just be sure to check that your lender won’t charge you for making additional repayments. Use our extra repayment calculator to find out the impact extra repayments might have on your loan.

Alter your repayments to get debt free

Bi-monthly repayments

Most people make repayments on a monthly basis, but switching over to bi-monthly repayments can help reduce pay off your loan sooner. Bi-monthly repayments involve you paying the same amount of money you would pay with a monthly repayment, only split into two payments made every two weeks. You’re able to pay off your loan sooner because there’s 26 fortnights in a year as opposed to 12 months, meaning you will make the equivalent of one additional monthly payment a year. Over the course of a thirty year loan, this can add up.

Lump sum payments

A lump sum payment involves you making a large payment directly into your home loan account. This is an option for those times when you run into some extra money, like a bonus at work or a return from an investment. Putting money towards your home loan is not the most exciting way to spend your extra money, but it will help you in reducing your home loan debt. Making a lump sum payment can save you money on interest and shorten your loan term, so it may be a good option to consider. You can use our calculator to find out how a lump sum payment would effect your home loan.

number 3

Offset accounts

An offset account is when a transaction account is opened up with the same financial lender your home loan is with, and the account is linked to your home loan. Any balance that you hold in your offset account ‘offsets’ the principal loan amount, thereby reducing the interest you pay on your loan.

For example, if you have a home loan balance of $100,000 and you have $5,000 in your transaction account, you will only be charged interest on the $95,000 instead of the full amount.

Offset accounts are an effective way to reduce the amount of interest payable and, as a result, reduce the length of your home loan. In terms of your repayments, you will still make the same amount in repayments each month but the ratio of principal to interest will change. Typically, only full featured home loans offer offset accounts.

number 4


Refinancing your home loan involves you seeking a home loan with a better interest rate, lower fees or more features and making the switch over to that home loan. Typically, by making the switch over or consolidating your debt, you will be reducing your repayments and ultimately reducing your home loan debt. However, in some cases refinancing is not worth it due to the costs involved. It’s important to do your research beforehand and make sure it’s worthwhile to refinance.

Rates last updated May 23rd, 2018
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There are a range of methods that can assist you in reducing your home loan debt. If you think it’s time to take some action to reduce your time it takes to pay off your loan, compare the various ways to lower your debt and start taking control now. The sooner you begin to reduce your debt, the better you will be in the long run.

Marc Terrano

Marc Terrano is a content marketer manager at finder. He's been writing and publishing personal finance content for over five years and loves to help Australians get a better deal.

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NAB Choice Package Home Loan - 2 Year Fixed (Owner Occupier P&I) First Home Buyer Special

Start your home buying journey with 2 years of fixed repayments and a reasonable rate from a big 4 bank. Available with a 10% deposit.

UBank UHomeLoan Variable Rate - Discount Offer for Owner Occupied Variable P&I Rate — borrowing $700,000 or more

Pay no application or ongoing fees and get access to a redraw facility and flexible repayment schedule. Refinance to a UBank loan and you could get $1,000 in your USaver account (offer conditions apply).

Greater Bank Ultimate Home Loan - Discounted 1 Year Fixed LVR ≤90% ($150K+ Owner Occupier)

Loans over $150k get a discount off an already low fixed rate. Available for NSW, Qld and ACT residents only.

Newcastle Permanent Building Society Premium Plus Package Home Loan - New Customer Offer ($150,000+ Owner Occupier, P&I)

New borrowers or refinancers from another lender get a discounted rate with this package loan.

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