How To Pay Off Your Mortgage Faster

Consider these methods for paying down your home loan sooner. They may not suit every homeowner’s budget or financial situation, but it’s always worth researching these mortgage fast-tracking moves as things may change over the life of your loan.

1. Switch to Fortnightly Payments

If you’re paying down your home loan in monthly instalments, consider switching to a fortnightly repayment schedule. It’s a great way to squeeze additional repayments into your budget without feeling the financial pressure, as you’ll actually pay off an extra month’s worth of the loan over the course of a year since there are 26 fortnights in a year versus 12 months.

2. Make Lump Sum Payments Throughout the Year

Whenever you’ve got spare funds up your sleeve—whether it’s a holiday bonus or a healthy tax return—consider dedicating extra cash to your mortgage. Any opportunity to reduce the principal amount on your loan will cut down what you pay in interest over the life of the mortgage.

Just remember, some home loans have certain rules related to additional repayments. You may only be able to contribute additional lump sum payments a certain number of times each year or to a set limit, and making these payments may come with a fee.

3. Increase Your Repayments

Increasing the amount of money you put towards your mortgage is probably the last thing on your mind in the current climate of soaring interest rates and other rising living costs. But if you can rework your budget to allow for higher repayments now or when interest rates fall, you’ll sprint towards the mortgage-free finish line much sooner.

Let’s investigate the potential savings using our Mortgage Repayment Calculator.

Say you hold a $500,000 home loan with a 6.5% interest rate. If you’re making principal and interest repayments of $3,377 per-month, you can expect to pay back the loan in 25 years, having paid $512,811 in interest alone.

If you increase your repayments by roughly $350 so you’re paying $3,727 per-month, you’ll pay off the loan in 20 years while shaving off $118,123 in interest over the life of the loan.

4. Set up a Mortgage Offset Account

An offset account is a fantastic tool for mortgage holders with a solid amount of money set aside in savings. When you connect an offset account to your mortgage, it functions like any other transaction account while reducing the interest you’re required to pay in addition to your loan principal.

Let’s go back to that $500,000 mortgage. If you put $25,000 of your savings into a 100% offset account, you’ll only be paying interest on $475,000 of the loan. Keep in mind some lenders only offer partial offsets, meaning the mortgage interest repayments are only reduced by a certain percentage of your account balance. In either scenario, the cost savings will compound as you pay down your mortgage or increase the balance in your offset account.

Not every home loan includes access to an offset account, and some providers may charge a service fee or increased interest rate for this feature. If you don’t have a large-ish nest egg of savings, this tool may not be worth the cost or be as valuable as other mortgage features like having the ability to make and withdraw extra repayments.

5. Shop Around for a Lower Interest rate

It’s always worth keeping an eye on the market to ensure you’re getting the best deal on your mortgage, whether you’re seeking a more affordable interest rate or looking for greater flexibility and additional features at a similar rate. If you want to pay down your home loan as soon as possible, maintain the amount you repay each fortnight or month even if you do switch to a loan with a lower rate. You can read more in our guide to the best home loan deals on the market.

When you find a mortgage with all your desired features, minimal fees, or a lower interest rate (or all of the above), see if your current lender can match this first. Switching lenders may come with early loan exit costs like a discharge fee or break cost. If you’re not satisfied with your lender’s offer and have weighed up the costs and benefits of switching loans, then it could be time to refinance your home loan.

It’s advisable to speak to a few of your preferred lenders to ensure they’re willing to take on your debt before starting any official home loan applications, or you could use the services of a mortgage broker. Rejected loan applications can impact your credit score, which in turn affects your ability to access financing.

Once you’ve found a home loan that suits your needs with a lender willing to take on your debt, you’ll need to go through their official application process and await approval. Then the two lenders will organise the discharge and pay-out of the balance owing on your loan.

Make sure you read through all the relevant documents closely to detect any issues or hidden costs. Once everything is squared away, your new lender will set you up in their system so you can start repaying the loan at the new rate.

A mortgage is likely one of the largest debts you’ll take on in your lifetime, and paying this back as soon as possible can come with many benefits. However, every mortgage holder needs to consider this move in the broader landscape of their personal financial situation.

You may have other financial commitments or goals that you would like to address before committing extra money to your home loan. Perhaps you are saving towards a holiday or special event, or you are also paying down other debts like a car loan or business loan that are on tighter repayment schedules. Prioritising some investments over debt repayment may also be valid, whether you’re adding to your superannuation fund or making moves as a share trader.

Whatever your circumstances, it’s important to carefully research and consider the benefits and risks associated with each of these financial decisions. You can assess this independently, or seek financial advice from a relevant qualified professional.