How To Pay Off Your Mortgage Faster

Happy couple because free from mortgage debt.6 tips you can really use to pay off your home loan debt faster.

Paying off your mortgage faster could save you an enormous amount of money. The longer you take to pay off your home loan the more you pay in interest. So getting that mortgage paid off faster should be a financial priority for most borrowers.

Making regular extra repayments is the most obvious way to slim your mortgage down. But there's more to it than that. This page will give you several helpful strategies to reach financial freedom faster.

1. Make extra repayments

Setting aside just $100 a month for extra mortgage repayments will save you quite a lot in interest repayments over a 30-year loan period. Say you borrowed $500,000 over 30 years with an interest rate of 3.56%. Your monthly repayments would be $2,262. But if you add an extra $100 on top of that from the beginning of your mortgage you'd end up saving $25,845.58 in interest over 30 years.

You can use the calculator below to see how much interest you'll save by making extra repayments. Enter your loan amount, interest rate, loan period and then the extra amount you can pay on top.

2. Choose a shorter loan term

Most borrowers opt for a 30 year loan term. This reduces the size of your monthly repayments but you end up paying more over time than if you'd chosen a 25-year term. Why is that? Because you'd be paying off that interest for five more years. The longer you borrow money from the bank the more they make in interest.

This is a smart option for borrowers who can afford higher monthly or fortnightly repayments. If you can't, then stick with a 30-year loan term and work out other ways to pay off your mortgage faster.

3. Use an offset account

Graphic explaining how offset accounts work. If your mortgage has an offset account you can cut down your loan term and save on interest repayments without actually making extra repayments. An offset account is a savings account attached to your mortgage. But instead of gaining a small amount of interest, the money in this account offsets your loan principal, which means you pay less interest.

If you have a $500,000 mortgage with $30,000 in an offset account your monthly repayments stay the same but you pay off more principal and less interest.

Offset accounts are a good option for borrowers who have some extra cash saved but need to keep it ready for emergency expenses. An offset account gives the benefits of extra repayments while allowing you to pull the cash out and use if needed.

4. Refinance to a lower rate but keep your repayments the same

Switching to a mortgage with a lower interest rate is called refinancing. It's an excellent way to lower your repayments and spend less on your mortgage. But refinancing could help you get debt-free faster. The trick is to switch to a lower interest rate but keep your repayments the same as they were before.

It will feel like nothing has changed but you're actually making extra repayments.

5. Make regular repayments as early as possible

The classic trick is to make fortnightly instead of monthly mortgage repayments. There are 12 months in a year but 26 fortnights. In effect, it adds an extra month of repayments.

But there's an even better trick: make your repayments on pay day. Unless you have a lot of cash in the bank you're probably waiting on your next pay check to cover your next mortgage repayment. If you get paid a week before your next mortgage payment is due, why wait? Make the repayment the next day.

Your lender calculates your interest at the end of every day based on how much you owe. The sooner you shrink that number the less interest you pay. So if you can afford it, make your repayment on pay day.

6. Start with a larger deposit

It's not a realistic option for every borrower, but scraping together a bigger deposit means borrowing less. This might mean keeping to a tighter budget, asking for a pay rise, selling some shares, or even borrowing from your parents and paying them back (depending on the interest rate set by "the bank of Mum and Dad."

If this might be an option for you then check out our in-depth guide on all the ways you can save a deposit.

Is there anything to be wary of when rushing to pay off my mortgage?

The above tips are useful but you do need to watch out for a few possible problems when rushing to repay your mortgage.

Does your loan penalise your for making extra repayments?

Some mortgages charge you a fee for making extra repayments. This can be an expensive punishment for trying to get out of debt faster. Check the fine print of your mortgage, speak to your lender and consider refinancing to a more accommodating loan.

Check your equity before refinancing

The two assumptions we make when talking about refinancing are that you've been paying off your mortgage and your property has risen in value. These two facts increase the equity you have in your home, making it easier to refinance.

But if your property has fallen in value (and it can happen) or you haven't paid off much of the mortgage you might not have much equity. In this case, refinancing might hurt you. If your loan-to-value ratio is below 80% you might have to pay lender's mortgage insurance. Learn more about equity and refinancing.

Start comparing cheaper mortgages and save on repayments

Rates last updated October 20th, 2018
$
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.59%
3.59%
$0
$0 p.a.
80%
Enjoy flexible repayments, a redraw facility and the ability to split your loan. Plus, pay no application or ongoing fees.
3.57%
3.58%
$0
$0 p.a.
80%
Get a very low interest rate and pay fewer fees. Enjoy a fast online application process and add a 100% offset account for $10 a month.
3.59%
3.61%
$0
$0 p.a.
90%
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.
3.59%
3.62%
$0
$350 p.a.
90%
Get a low variable interest rate and buy a property with just a 10% deposit. 100% offset account attached.
3.69%
3.73%
$600
$0 p.a.
95%
A home loan with no ongoing fee and a redraw facility that you can borrow up to 95% LVR.
3.64%
3.66%
$0
$0 p.a.
80%
A simple mortgage with a competitive interest rate and no application or monthly fees. Borrow up to $2 million from a convenient online lender.
3.54%
3.57%
$0
$0 p.a.
80%
A competitive variable essentials interest rate product aimed at refinancers looking to switch to a lower rate.
3.49%
4.57%
$0
$395 p.a.
90%
Loans over $150k get a discount off an already low fixed rate. Available for NSW, QLD and ACT residents only.
3.68%
3.82%
$0
$10 monthly ($120 p.a.)
80%
Get double Velocity Frequent Flyer Points with this mortgage to spend on flights and more (for a limited time, subject to eligibility requirements). Redraw facility available on this variable rate home loan. Competitive interest rate.
3.54%
3.58%
$0
$0 p.a.
80%
Get a competitive rate, save on fees and access a 100% offset account plus redraw facility. $900 cashback offer.

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Richard Whitten

Richard is a home loans expert at finder. He can help you navigate the complex world of home loans and find a better deal.

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