How To Pay Off Your Home Loan Faster
If you're a homeowner, you might be searching for effective ways to pay off your home loan faster. One of the simplest strategies to cut years off your home loan is by making fortnightly repayments instead of monthly ones. In this article, we’ll reveal our top tips and tricks for shaving years off your home loan and reducing the amount you pay in interest.
1. Switch to fortnightly repayments
A simple but effective trick to help you pay off your home loan sooner is to switch from monthly repayments to fortnightly repayments. Here's how it works: divide your monthly repayment by 2 and make that payment every fortnight.
The maths: There are 12 months in a year, but 26 fortnights. By making fortnightly repayments, you're essentially paying an extra full month’s worth of repayments each year.
But that's not all – fortnightly repayments also help reduce the amount of interest you pay. Since lenders usually calculate interest daily, paying every fortnight reduces the compounding interest compared to monthly repayments. This can make a significant difference over time.
2 Find a lower interest rate but maintain your current repayment amount
If you're not reviewing your refinancing options every 1-2 years, you could be missing out on more competitive rates.
By securing a lower interest rate and continuing to make the same repayment amount, you’ll be able to pay off your loan sooner.
Find out if you're eligible for a lower rate here.
3. Round up your repayments
Rounding up your repayment amount is an easy way to make extra payments without thinking about it. For example, if your monthly repayment is $1,800, try paying $2,000 instead. Even if you can only afford an extra $20 or $50 each month, every dollar counts and will reduce the interest you pay and help you pay off your loan sooner.
Additionally, getting into the habit of saving coins and $5 notes can add up over time. You can use this extra change for additional repayments or keep it as an emergency fund in case your circumstances change.
nsistently moving closer to your deposit goal.
4. Use an offset account or redraw facility
An offset account can save you thousands in interest when used effectively. For example, if you owe $200,000 on your home loan and have $10,000 in an offset account, the $10,000 will be offset against your loan balance, meaning you’ll only pay interest on $190,000.
By paying less in interest, you can make larger repayments to pay off your home loan sooner. Additionally, a redraw facility lets you access any extra repayments you've made. If you have extra cash but aren’t sure if you'll need it later, you can make an extra repayment and withdraw the funds when needed, helping you reduce interest while maintaining access to your savings.
5. Get your salary paid into your offset account
An easy way to reduce the interest you pay on your home loan is by having your salary paid directly into your offset account. You can still use it as a regular transactional account, accessing your money whenever needed, but every day the money sits in the account, you’ll save a little on interest.
6. Put your bonus towards your home loan
If you're able to, making additional repayments can offer significant benefits. Each extra payment reduces the principal amount you owe, which in turn lowers the interest charged by your lender.
Consider using lump sum payments, such as your tax refund, inheritance, or work bonus, to pay down your home loan. Applying all or a portion of these funds directly to your loan can help reduce the principal and shorten the term of your home loan, ultimately saving you money.
7 Switch from Interest Only to Principal & Interest repayments
If you're currently on an Interest Only loan, switching to a Principal & Interest loan can help you start paying down the principal and reduce your interest payments. The sooner you make the switch, the sooner you’ll begin making progress towards paying off your home loan.
Want to know how much your P&I repayments will be? Find out in seconds with our Repayment Calculator.
What happens if you pay off your mortgage early?
In some cases, lenders may impose prepayment penalty fees if you pay off your home loan too early. This is because lenders earn money from the interest charged on loans, and paying off the loan quickly can result in lost interest.
However, this typically only applies to the first few years of the loan term, and not the entire duration. It’s important to review the terms and conditions of your loan to check if these fees will apply to you.
If you have a fixed rate home loan, early repayment may also incur break fees.
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in Residential & Commercial Banking