To pay off your home loan faster, pay more than the minimum, as early as possible, on the sharpest rate you can get: every extra dollar goes straight to principal. On a $600,000 loan at a 6 per cent example rate over 30 years, an extra $200 a month clears the loan about 3.9 years early and saves about $107,000 in interest. The methods below use that same example loan.

The example loan

All figures below use a $600,000 principal and interest loan at a 6 per cent example rate over 30 years. The minimum repayment is $3,597.30 a month, and total interest over the full term is about $695,000. These are illustrations, not quotes; your own figures will differ. The extra repayments calculator runs them for your loan.

What each method does on a $600,000 loan at 6% over 30 years
Method Paid off sooner by Interest saved
Extra $100 a month About 2.1 years About $58,000
Extra $200 a month About 3.9 years About $107,000
Extra $500 a month About 7.9 years About $213,000
Half the monthly repayment every fortnight ($1,798.65) About 5.5 years About $149,000
$20,000 kept in an offset account About 2.1 years About $92,000
$10,000 lump sum after the first year About 1.2 years About $45,000
Rate 0.25% lower, same repayment kept About 2.0 years About $87,000

1. Make extra repayments

The simplest and most powerful lever. On a variable loan most lenders allow unlimited extra repayments without a fee. Fixed loans usually cap them, often at a set amount a year, and charge break costs above that. Set the extra amount up as a scheduled payment so it happens without a decision each month.

2. Pay half the monthly amount every fortnight

There are 26 fortnights in a year, so paying half the monthly repayment each fortnight adds up to 13 monthly repayments instead of 12. On the example loan that is $1,798.65 a fortnight, and it takes about 5.5 years off the term. It works best when you are paid fortnightly, because the repayment lines up with your pay. Check the lender actually applies fortnightly payments as they arrive: some only switch the schedule if you set the loan up that way.

3. Use an offset account

Money in an offset account is subtracted from the loan balance before interest is calculated, so $20,000 in offset saves interest on $20,000 every day it sits there, while staying available. On the example loan, a steady $20,000 offset balance cuts about two years and $92,000 of interest. The offset accounts guide explains when an offset pays for its fees, and the offset calculator runs your balance.

4. Put lump sums on the loan

A tax refund, bonus or inheritance placed on the loan early does the most work, because it saves interest for every remaining year. $10,000 after the first year saves about $45,000 on the example loan. If you might need the money again, park it in offset instead: the saving is almost the same and you keep access.

5. Get the rate down, and keep the repayment up

A lower rate only shortens the loan if you keep paying the old repayment. On the example loan, a rate 0.25 percentage points lower with the repayment unchanged clears the loan about 2.0 years early. Ask your lender to reprice, or compare the panel: the refinance calculator shows what a switch saves after costs, and the guide to asking for a better rate covers the conversation with your current lender.

6. Keep repayments steady when rates fall

When the cash rate falls, many lenders lower the minimum repayment automatically. Asking the lender to keep the repayment where it was turns every rate cut into extra principal paid, with no change to your budget.

7. Choose a shorter term when you can afford it

To clear the example loan in 15 years the repayment would be about $5,063 a month; in 10 years, about $6,661. A shorter term locks that higher repayment in. Many borrowers prefer a 30-year term with voluntary extra repayments, which gives the same result when times are good and room to ease off when they are not.

When paying it off faster is not the priority

  • High-interest debt comes first. Credit cards and personal loans cost far more than a home loan. The debt consolidation guide explains the trade-offs of rolling them in.
  • Keep a buffer. A few months of expenses in offset protects you from having to borrow at worse rates if something goes wrong.
  • Investors may think differently. Paying down a deductible investment loan before a non-deductible home loan usually makes less sense. That is a question for your accountant.
  • Watch fixed-rate limits. Extra repayments above a fixed loan’s allowance can trigger break costs. See fixed vs variable.

How much faster: extra repayments at a glance

The example loan: $600,000 over 30 years at 6 per cent, minimum repayment $3,597.30 a month
Extra each month Paid off in Time saved Interest saved
$100 About 27.9 years About 2.1 years About $58,000
$200 About 26.1 years About 3.9 years About $107,000
$500 About 22.1 years About 7.9 years About $213,000
$1,000 About 17.7 years About 12.3 years About $321,000

The pattern matters more than the exact figures: each extra dollar saves more the earlier it goes in, because it stops interest compounding on that dollar for the rest of the loan. The extra repayments guide works through your own numbers.

Stacking the methods

The methods add up. Take the same loan and combine three of them: the rate falls by 0.25 per cent to 5.75 per cent and the repayment stays at the old $3,597.30, an extra $200 a month goes on top, and $10,000 sits in an offset account. The loan is paid off in about 24.1 years, roughly 5.9 years early, and saves about $201,100 in interest.

The rate cut alone, with the repayment kept at the old level, takes about 2.0 years off and saves about $87,000. That is the case for asking your lender for a sharper rate and then not letting the repayment fall: the saving goes on the loan instead of disappearing into the budget. The guide to asking for a better rate covers the conversation.

Check these before you start

  • Fixed-rate limits. Many fixed loans cap extra repayments each year and charge break costs above the cap. Check the limit before paying more.
  • Redraw rules. Money paid in may only come back through redraw, which can have minimums, fees or a waiting period. An offset keeps it at hand.
  • A buffer first. Keep a few months of expenses accessible before putting everything on the loan; a car repair should not mean a credit card.
  • Higher-cost debt first. Credit cards and personal loans usually cost more than the home loan, so clearing them first often saves more.
  • Package fees. An offset that comes with an annual fee only pays its way once the balance is large enough to save more than the fee. The offset savings calculator shows the point.

Which method suits your situation?

Matching the method to how your money arrives
Your situation Method that usually suits
Regular salary, variable rate A fixed extra amount each pay, plus savings in an offset
Fixed-rate loan Extra repayments up to the lender’s yearly cap; the rest in savings until the fixed period ends
Irregular or seasonal income An offset account, so surplus months reduce interest without locking the money away
Bonuses or a tax refund Lump sums on the loan or into the offset as they arrive
A rate well above new-customer offers Ask your lender to reprice, or refinance, and keep the old repayment

Whatever the method, automate it. A transfer set up on payday does more over 30 years than good intentions do.

Questions people ask

Is it better to make extra repayments or use an offset account?

Neither saves more: the interest saving is almost identical. Offset keeps the money available without a redraw request, which suits a buffer; extra repayments suit money you will not need. Redraw rules vary by lender, so check them.

Can I pay off a 30-year mortgage in 10 years?

Yes, if the repayments are large enough. On a $600,000 loan at a 6 per cent example rate that is about $6,661 a month, almost double the 30-year minimum of $3,597.30.

Do fortnightly repayments really make a difference?

Only when each fortnightly payment is half the monthly amount, which adds one extra monthly repayment a year. Paying the same annual total in fortnightly slices saves very little.

Should I pay off my home loan or invest the money?

It depends on how much risk you want: paying off the home loan gives a guaranteed, tax-free return equal to the interest rate, while investing may return more, with risk. Your accountant or a licensed financial adviser can weigh it for your situation.

Are there fees for paying off a loan early?

Variable loans generally have no early repayment penalty, though a discharge fee applies when the loan is closed. Fixed loans can carry break costs. The mortgage discharge guide explains closing costs.

Charles Touma reviews loans for rate and structure as well as for new purchases. If your loan has not been repriced in a year or two, a short call will show what a better rate and a repayment plan would save. General information only, not credit advice; figures are illustrative and calculated at a 6 per cent example rate. Every figure is calculated by Links on the stated example loan.

General information only, not credit, legal or tax advice. Your situation is assessed properly before any recommendation. Government scheme details change; figures are current at the time of writing.