How to pay off your home loan faster: Our tips to get ahead of your mortgage

Paying off your mortgage ahead of time can feel like a daunting task, but there are ways to pay down your home loan faster – and doing so can save you thousands in repayments.

Right off the bat, we recommend you compare home loans when you’re looking to spend less on your mortgage, though other adjustments such as increasing how often you pay your home loan can also benefit you greatly.

The biggest benefit of paying off your home loan early is that you’ll spend less money on interest. 

“The sooner you can make progress in paying off your mortgage the less interest you will pay,” says Mozo’s financial services specialist, Peter Marshall.

“Even paying a little extra now could save many thousands of dollars over the life of your loan.”

There are simple adjustments you can make to help pay off your home loan early and become debt-free sooner than you expected – here are some methods to consider.

Increase your repayment frequency

When you first sign up for a home loan, it’s likely you’ll be making monthly repayments. But if you increase your repayment frequency to pay your mortgage weekly or fortnightly, you can slash the amount of interest you’ll pay over the course of your loan.

This is because the amount of interest you’re charged is calculated as a percentage of your remaining balance.

So, the sooner you pay off your principal – the non-interest part of the loan – the better.

Going this route means you’ll spend a higher amount on your mortgage repayments in a shorter time frame, but you’ll benefit from a significant saving in the longer term.

Marshall says there are a few ways to start knocking down the amount you owe through increasing your repayment frequency.

“First, if you get paid more regularly than monthly, you might be able to make your payments sooner, and this can cut down the interest by a little each month which will mean that more of your repayments can go toward reducing the size of your loan,” he says.

“The other is if you can afford to keep your monthly repayment level, but make that payment every four weeks instead of monthly, that will mean making an extra repayment every year which can be a great way to slash the size of your loan faster.”

In order for this tip to work successfully, you’ll likely need to voluntarily make extra home loan repayments every fortnight – not request that your bank formally updates your repayment frequency.

If you formally request the change, your lender will likely recalculate your repayments in such a way that could see you pay more interest over time – avoid this by voluntarily increasing your repayment frequency instead.

Make extra repayments

If you can’t commit to paying off your home loan in weekly or fortnightly instalments, consider making extra repayments when you can. These can be anything from a large lump sum you receive as an inheritance or a smaller amount such as your yearly tax refund.

You can work out how a lump sum will impact your mortgage repayments by using our extra home loan repayments calculator.

Use an offset account

An offset account is a transaction account that’s linked to your home loan, and it can be beneficial because any money in your offset account is subtracted from how much you owe on your home loan.

In other words, an offset account ‘offsets’ the total balance of your home loan and reduces the amount of interest you’ll need to pay – this can allow you to pay off your home loan faster by allowing you to eat away at your principal more efficiently.

Mozo’s Home Loan Report for 2024 found that 46% of borrowers don’t have a home loan with an offset account, so there’s a big opportunity to save here.

Just keep in mind that you may be charged a fee to use a home loan with an offset account.

Check your interest rate regularly

You should compare home loans regularly to help ensure you’ve got a competitive interest rate over the entire life of your loan. This is especially important in a changing interest rate environment, meaning you could potentially check your rate against the competition each year.

Mozo’s Home Loan Report found that 20% of borrowers in Australia hadn’t compared their rate since first getting their home loan, and crucially, those who regularly compared were more likely to have a lower interest rate.

In addition to your interest rate, you might also want to make sure you’ve got access to the features you want, and aren’t spending money on the ones you don’t need. Some to keep in mind include:

• Offset account
• Redraw facility
• Extra repayments
• Repayment holiday.

If you find a lower interest rate or a home loan feature you want, ask your current lender if it can be matched. If not, it might be time to refinance your home loan.

Curious to see how much you could save by switching home loans? Go to our home loan comparison calculator.

Pay principal and interest

If you want to pay off your home loan faster, it’s important that you’re paying off both the principal and interest.

An interest-only home loan is likely to temporarily lower your mortgage repayments, but it’s not reducing the principal part of your loan, which is the amount you’ve actually borrowed.

†Based on the average variable rate, owner-occupied home loan, paying principal & interest on a $500,000 loan over 25 years, at 80% LVR. Correct as at 15 October, 2024.

††Based on the average Big Four variable rate, owner-occupied home loan, paying principal & interest on a $500,000 loan over 25 years, at 80% LVR. Correct as at 15 October, 2024.