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How to Pay Off a Mortgage Faster

Lots of hints and tips on how to pay off your home loan or mortgage faster. Loan repay advice from Savvy, the comparison expert.

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, updated on August 7th, 2023       

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Are you thinking about how to pay off your mortgage faster? The popular adage ‘little and often’ has never been more appropriate than when applied to paying off home loans more quickly.

Fortunately, you can find out how paying just a little bit off your home loan regularly can save you thousands in interest payments and drastically reduce the time it takes you to pay off your mortgage right here with Savvy. Access useful tips and strategies for doing so here and start saving today.

Pay off more, little and often

Increasing each of your home loan repayments by just a small amount will make a big difference to how quickly you pay off your loan. Even a seemingly insignificant amount added to your contribution each month could shave years off your loan. For example, paying off just $100 extra per fortnight on a $500,000, 30-year loan at 2.5% p.a. interest will help you pay off your loan four years and four fortnights sooner, saving you $32,171.37 in interest in the process.

Refinance to a better interest rate – but keep your monthly repayments the same

Refinancing your mortgage to a loan with a lower interest rate will help you save a tremendous amount of money over the life of your loan. The table below demonstrates how much you can save over 30 years by doing so:

Interest rate Monthly repayments Monthly repayment reduction compared to paying 4% interest rate Total interest paid after 30 years Saving after 30 years compared to 4% interest rate
4%
$2,387
N/A
$359,348
N/A
3.5%
$2,245
$141
$308,281
$51,067
3%
$2,108
$279
$258,888
$100,460
2.5%
$1,976
$411
$211,218
$148,130

*Estimates calculated using a $500,000 loan to be repaid over 30 years. All figures rounded to the nearest dollar.

Now, imagine how much more quickly you could repay your home loan if, after one year, you refinanced from a 4% interest rate loan to a 2.5% interest rate loan, but kept paying the same monthly amount as you had previously?

In the first year of your mortgage, you’d pay $28,644 in principal and interest, leaving you with $491,194 principal remaining still to repay. If you continued to pay $2,387 off your mortgage repayment with an interest rate of 2.5%, you’d pay off your loan six years and seven months sooner and would save $48,954 in interest.

Use a mortgage offset account

A mortgage offset account is very useful for borrowers who want to reduce the time they spend repaying their home loan. This feature allows you to pay funds into an account linked to your home loan, which reduce the principal on which you pay interest. For example, a $500,000 mortgage with a $50,000 offset account attached would only incur interest on $450,000 of the loan. Many savvy Australians have their wages paid into this offset account to get the maximum possible benefit from their pay.

Refinance to a loan with a shorter loan term

You may initially have taken out your home loan for a 30-year period, which was a comfortable prospect when you were in your 20s and not earning much. However, as your career and pay progress, you may find yourself more easily able to afford your mortgage repayments. If you’re in this situation, you can refinance your home loan and choose a shorter loan period. Although making this change would increase your repayments, it’ll help you pay your loan off years earlier and potentially save you thousands in interest payments.

Pay fortnightly instead of monthly

Making loan payments fortnightly rather than monthly can also make a big difference to your loan repayment term. This is because there are 12 months in a year, but 26 fortnights, so fortnightly repayments allow you to make repayments equivalent to 13 months every year. You can do this by halving the monthly amount instead of sticking to the fortnightly minimum

As an example, if you take out a $400,000 mortgage at 2.8% p.a. interest, your monthly repayments would be $1,644 and you’d pay off the loan in 30 years, paying a total of $191,688 interest. However, if you were to have the same size loan but pay fortnightly instead, your repayments would be $822 (half of the monthly repayment amount) but you’d pay off your loan in 26 years and 7 months, saving yourself around three years and five months and over $24,500 in interest.

The pros and cons of paying off your mortgage early

PROS

Save money on interest

Paying off your mortgage early before the scheduled end of your loan term could save you  thousands of dollars in interest over the years.

Boost your credit score

Making additional repayments and paying off your loan more quickly will ensure your credit score rises more steeply, assisting you in accessing lower interest rates for finance deals in the future.

Have more disposable income later in life

If you’ve always dreamed of going on a world cruise, buying a luxurious caravan or a top-range new car, paying off your home loan in ten or 15 years instead of 25 will ensure you have more disposable income to help make your retirement dreams a reality.

Give your children a hand up the property ladder

Paying off your home loan quickly could mean that you own your home mortgage-free by your 40s or 50s. This may enable you to act as a guarantor for your children at a time in their lives when they’re looking to move into property ownership.

CONS

Larger repayments

If you want to pay off your home loan faster, you’ll have to endure some short-term pain to achieve your objective. Making larger loan repayments may curtail your lifestyle in the early years of life just when you may be starting your family.

Locking up your savings

If your loan doesn’t have a redraw facility, making additional repayments on your home loan could soak up any surplus funds at the end of your pay cycle, leaving you short of available cash in the event of an emergency.

Closing the door on easy access to additional funds

If you pay off your loan early and close your loan account, you’ll have to re-apply for another loan as if you were a new loan customer. Therefore, if you decide you’d like to renovate your house (or borrow to invest), you’ll have to go through the loan application process again rather than just asking an existing lender for a top-up loan to pay for your renovations or investments.

Further 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 one to five years by only contributing to interest payments. This means the principal loan amount isn’t reduced, so this won’t help you pay off your principal faster at all. You’ll end up paying substantially more in interest as a result of your principal not reducing for the duration of your interest-free period.

Is refinancing to a split rate home loan a good idea?

A split loan allows you to have a portion of your loan on a fixed interest rate, and another portion on a variable rate. The portion of the split doesn’t have to be even, either, so you could opt for 70% of your loan to be on a fixed rate for a set period of one to five years and 30% to be on a variable rate, giving you the flexibility to pay lump sums off the variable part of the loan, but budgeting certainty for the larger majority of your mortgage. You’ll have to revisit your loan after the fixed term expires.

Should I refinance with different lenders to take advantage of better offers?

Refinancing to a better loan can save you thousands in interest and fees if you can take advantage of lower interest rates. However, watch out for substantial discharge or break fees (if you’re under a fixed term) and new loan establishment fees which could make a dent in the advantage you gain by refinancing. In addition, be aware that frequent loan applications may influence your credit rating. You can also talk to your existing lender and ask if they’re prepared to offer you a fee-free switch to a more favourable rate loan offered by them.

Where do I find the best home loan rates in Australia to help me pay off my mortgage faster?

Savvy is a great place to start when you’re looking to compare mortgages. We list and compare the top mortgage offers on the market right now so you can see exactly what’s being offered to borrowers by our lending partners to help them pay off their home loans faster.

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

Most states have programs in place designed to reduce the financial burden placed on first home buyers called First Home Owner Grants. Depending on where you live, you could receive up to $15,000 to put towards a deposit for your mortgage, which means you may not have to borrow as much money by contributing a larger deposit. There are also other initiatives available across Australia in relation to stamp duty concessions or exemptions, which can help free up your available funds, so you should check both federal and your state or territory’s government websites to find out more information.

What percentage of my salary should I put towards paying off my loan sooner?

This will, of course, depend on your personal circumstances, such as your family situation, income, expenses, loan amount and interest rate. As a general rule, around 28% to 32% of your total household income should be funnelled into your mortgage repayments, as this gives you the best chance of paying off your home loan sooner. You may find that your expenses are such that you can afford to add extra on top of that, which will cut down on your loan term.

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