How to pay off mortgage faster

A mortgage can serve as a real drain on your finances over the 30 years you’re likely to have to repay it over. There are actually ways around keeping it on your books for that long, though, and they can help you save a lot of money over the life of your loan. In this guide, we dive into the different ways you can pay off your mortgage faster and what they’ll mean for your finances.

How do I pay off my mortgage faster?

There are several options you can take to maximise the speed at which you’re able to pay off your mortgage, so we’ve listed a few of them for you to consider. You can choose any or all of these to make your home loan repayment experience that much smoother.

Refinance your mortgage

Refinancing your mortgage is one way to ensure that you’ll be able to reduce the time it takes to pay off your home loan. This method involves switching your existing mortgage to a different loan or lender to take advantage of kinder conditions, such as to gain access to the best home loan interest rates and features. Moving your current home loan to one with a better interest rate will save you a stack of money if you’re able to refinance. Take a look at the table below to demonstrate how much of a difference an interest rate can make to a home loan over a short period of time.

Interest rate Monthly repayments Saving compared to 4% Total repaid over five years Saving compared to 4%
4%
$2,387.08
N/A
Content 1
N/A
3.5%
$2,245.22
$141.86
$134,713.20
$8,511.60
3%
$2,108.02
$279.06
$126,481.20
$16,743.60
2.5%
$1,975.60
$411.48
$118,536.0
$24,688.80

*Estimates calculated using a $500,000 loan to be repaid over 30 years. 

Additional repayments

Refinancing to access better features shouldn’t be forgotten about as a way to cut down your repayment time also. You should always look to mortgage offers which include free additional monthly repayments as part of the deal, as taking advantage of these can cut down both your time and amount paid considerably. Putting more forward in months where your interest rate is at a positive level is always advisable to cut down on spending, which will in turn trim your repayment period each time. Additionally, these will allow you to pay off larger amounts if you’re given a lump sum through a windfall or inheritance.

Mortgage offset account

A mortgage offset account is also highly recommended for borrowers who wish to cut down on their time repaying the loan. This feature allows you to contribute funds into an account linked to your home loan which reduce your principal without having to pay extra interest. Using the example of a $500,000 mortgage at 3% over 30 years, depositing $10,000 per year into your offset account could cut your repayment period down by almost 10 years. See the impact this mortgage offset account can have in the table below.

Year Total principal and interest repaid Additional offset account total Principal amount owed Principal owed without offset account
1
$25,296.24
$10,000
$479,561.00
$489,561.00
2
$50,592.48
$20,000
$458,804.49
$478,804.49
3
$75,888.72
$30,000
$437,720.81
$467,720.81
4
$101,184.94
$40,000
$416,300.01
$456,300.01
5
$126,481.20
$50,000
$394,531.83
$444,531.83

Make your repayments as if your interest rate were higher

Many may not think to do this, as securing a low interest rate is what facilitates lower repayments in the first place, but it’s a great way to cut down on the time it takes to repay your loan. Contributing an amount to your mortgage equivalent to one or more percentage points above the actual interest rate, while restricting your funds short term, will reduce your principal amount owed more quickly. Every little bit counts, so whatever you can manage to pay on top of your actual repayments will be good for you. The table below outlines what this may look like.

Interest rate Monthly repayment Paying like the interest rate is New monthly repayment Amount paid extra per month Amount paid extra per year
3%
$2,108.02
4%
$2,387.08
$279.06
$3,348.72

Pay fortnightly instead of monthly

Following on from the previous point about making repayments as if the rate were higher, making payments fortnightly rather than monthly can also make a difference to your finances in a small but meaningful way. This is because, while there are 12 months in a year, there are 26 fortnights. Fortnightly repayments give you the opportunity to make contributions equivalent to 13 months every year. You can calculate this by simply dividing your monthly repayment by two and then multiplying by 26 to see how much extra you’ll pay in a year.

Consolidate your debts under one roof

If you have multiple debts on your books to balance on top of your home loan, you may find that it becomes difficult to manage different payment cycles and requirements. A debt consolidation loan not only simplifies your finances but also ensures your various debts are now listed at a much more affordable interest rate. Credit card and personal loan debts can carry significantly higher interest rates than those of home loans, so bringing them into one single loan can reduce your monthly repayments considerably. While it may seem that you’re simply adding onto your home loan principal, you’re making your monthly repayments more affordable, thus making it easier for you to go above and beyond by making additional payments. The table below outlines the difference you’ll see in a debt consolidation home loan.

Debt Amount owed Interest rate Term Monthly repayments
Home loan
$500,000
4%
30 years
$2,387.08
Personal loan
$30,000
9%
7 years
$482.67
Credit card #1
$10,000
17.5%
2 years*
$490*
Credit card #2
$7,500
15%
2 years*
$359*
TOTAL
$547,500
$3,718.75
Debt consolidation loan
$547,500
4%
30 years
$2,939.10
SAVING PER MONTH:
$779.65

*Represents a high monthly credit card repayment which would see debts paid off in two years.

Cut down on your expenses

Paying your minimum monthly repayments is beneficial to an extent. Doing so allows you, firstly, to live in your new, desirable property comfortably and not worry too much about your mortgage expenses. Because these repayments are calculated on the basis that it’ll be comfortable for you to manage them, it’s likely that meeting the minimum requirement will ensure your finances remain in order throughout the remaining period. It’ll also free up more funds that you can commit to other areas of your finances, such as purchasing and maintaining a car, going on holiday, school fees and more.

It’s important to note, though, that the longer you leave your home loan active, the more you’ll pay in fees and interest. This means that while your repayments will be more manageable, you’ll pay more over the life of the loan. These repayments aren’t so much reduced as extra repayments are an increase on the minimum. We recommend paying off your home loan as quickly as you can for that reason if possible.

Are there any benefits to me taking longer to pay off my mortgage, rather than doing it faster?

Paying your minimum monthly repayments is beneficial to an extent. Doing so allows you, firstly, to live in your new, desirable property comfortably and not worry too much about your mortgage expenses. Because these repayments are calculated on the basis that it’ll be comfortable for you to manage them, it’s likely that meeting the minimum requirement will ensure your finances remain in order throughout the remaining period. It’ll also free up more funds that you can commit to other areas of your finances, such as purchasing and maintaining a car, going on holiday, school fees and more.

It’s important to note, though, that the longer you leave your home loan active, the more you’ll pay in fees and interest. This means that while your repayments will be more manageable, you’ll pay more over the life of the loan. These repayments aren’t so much reduced as extra repayments are an increase on the minimum. We recommend paying off your home loan as quickly as you can for that reason if possible.

The pros and cons of paying off your mortgage early

Still unsure of whether you should commit to paying off your mortgage early? Consider the positives and negatives here.

PROS

Saving money over time

Paying off your mortgage before the scheduled end of your loan could save you thousands of dollars in interest and fees in the long run.

Boosting your credit score

Making additional repayments and paying off your debt quickly will ensure that your credit score will rise throughout the repayment process and settle on a great rating.

CONS

Paying more each month

If you want your mortgage off your books earlier, you may have to endure some short-term pain in the form of greater monthly repayments.

Closing doors on easy access to additional funds

If you decide you’d like to borrow more money, such as for renovations or investing, closing your home loan will make the process to apply for the extra funds longer.

Paying off your mortgage faster: any other questions?

Here are some of the most commonly asked questions about paying off your mortgage faster

Will an interest only mortgage help me pay off my debt faster?

No – an interest only mortgage offers buyers the opportunity to pay less each month for repayments for the opening 1-5 years by only contributing to interest payments. What this means is that the principal amount is not going down, which will ensure that you pay more for your loan overall and increase its likelihood of running to term.

Should I refinance my fixed rate home loan to pay off my mortgage faster?

Probably not – one thing to watch out for when refinancing are upfront fees that you may have to pay when switching to another loan. If your current agreement is a fixed rate home loan, your lender may charge you a substantial break fee for terminating the loan to move elsewhere.

Where do I find the best home loan rates to help me pay mine off faster?

Savvy is always a great place to start when you’re looking to compare mortgages between lenders. We list the top mortgage offers on the market right now so you can see which ones could be the best for you to pay off your debt at a greater speed.

What is a comparison rate and how can it help me pay my mortgage off faster?

A comparison rate is a figure that incorporates both the interest rate and cost of fees on a home loan to give you an indication of how much you’ll pay each month. Watching out for lenders with affordable comparison rates that are close to their interest rates will help you determine which ones will allow you to make greater contributions and avoid costly fees, thus pay it off sooner.

How can I pay my home loan off faster if I’m a first homebuyer?

Each state has a program designed to reduce the financial burden placed on first home buyers in the form of the First Home Owner Grant (FHOG). Depending on where you live, you could receive up to $20,000 that you can put towards your mortgage, which means that you’ll have $20,000 less to pay upfront. Aside from this, keeping on top of your repayments and adding extra where you can will help as always. There are also other initiatives available across Australia in relation to stamp duty concessions or exemptions, so you should check your state government’s website to find out more.

Will I be able to negotiate a better mortgage deal for myself to help me pay it off faster?

Yes – there’s almost always room for haggling when it comes to home loans, so you should enter the process knowing what you want and be determined to get it. Lenders want your business as much (if not more) than you want theirs, so they’ll usually be willing to bend on conditions like interest rates and additional features that can help you pay it off quicker.

How long does it take on average to pay off a mortgage in Australia?

Most homebuyers will take out a mortgage on a repayment term of 30 years and repay it according to, or close to, that timeframe. However, many will successfully have their home loan repaid before the 30-year mark, with some lenders offering home loans at 25 years in addition to the 30-year terms that are paid off early.