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Five ways to pay off your home loan early

Georgia Brown avatar
Georgia Brown
- 4 min read
Five ways to pay off your home loan early

There’s a good chance your mortgage will be your biggest financial liability in life. So, it’s worth considering ways that could help you pay it off earlier to enjoy freedom from your mortgage sooner.

When it comes to your home loan, the more you owe, the more you’ll likely pay in interest charges, which means paying down your debt as quickly as possible is often in your best interest. However, it’s still important to keep your repayments at a manageable level to avoid financial strain.

Fortunately, there are ways you can work towards paying off your home loan early without dramatically affecting your everyday household budget.

1. Consider refinancing

Looking around for cheaper interest rates can be a great way to save money and pay off your home loan sooner. And if you have built up a substantial amount of equity in your home since taking out your current loan, you could find that lenders are now willing to offer you a more competitive interest rate.

If you switch to a home loan with a lower interest rate on the same loan term as you currently have remaining, you’ll likely see your repayments decrease in cost. One way to pay your home loan off sooner is to continue to pay your previous repayment amount on your new loan, with the difference functioning as extra repayments. This will see more of your loan being paid off and less spent on total interest charges without your household budget taking a hit.

But before you jump ship to another lender, consider having a chat with your current lender first to see if they can offer you a better interest rate. And don’t forget to find out what fees are involved in changing lenders before you make the move to refinance. 

2. Change your repayment frequency

If your lender allows it, you could consider making more frequent repayments – say fortnightly rather than monthly. Making fortnightly home loan repayments means you’ll make 26 repayments per year, which equates to paying 13 monthly instalments per year instead of 12 (depending on your lender). And if you’re paying an extra monthly repayment every year, it won’t take long before you’re ahead on your loan term by a year or so.

This can be a particularly helpful strategy for those who receive their income on a weekly or fortnightly basis, as it keeps budgeting simple.

3. Make lump sum payments

Making a lump sum extra repayment – such as a salary bonus or other windfall – on your home loan can also help shave additional interest repayments and time off your mortgage.

A handy trick is to consider making a habit out of paying your annual tax return (if you get one) directly into the home loan. Over time, you may see a true difference to your home loan. 

4. Shorten the length of the loan

The standard home loan term in Australia is around 25 years. As a rule of thumb, the longer the loan term, the lower your regular repayments. However, what you save in repayments now, you’ll typically pay for in additional interest in the future.

By reducing the average 25-year home loan by a number of years, in consultation with a lender, your regular repayments will increase. However, this strategy will help reduce the interest you’ll pay over the long term, so if it’s feasible for your budget it may be worth considering.

5. Utilise your offset account 

If your home loan has an offset account, making the most of it could save you money on interest charges and allow a larger proportion of your repayments to go towards paying down your principal amount.

The way this works is that if you have, for example, $30,000 in your offset account and $330,000 remaining on your mortgage, your interest will be calculated as if you have just $300,000 remaining.

Home loans with offset accounts attached can have higher fees or rates than more basic home loan products, but if you’re taking advantage of the extra feature it could end up saving you money.

And unlike making extra repayments on your home loan, an offset account allows you easy access to your savings as it works just like a transaction or savings account.

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Product database updated 21 May, 2024

This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.