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Top tips for paying off your home loan sooner

A mortgage doesn’t have to dominate your life forever. With some smart and simple strategies, you can shave years off your home loan – and own your home debt-free, sooner! For those who are serious about chipping away at their home loan, here are some top tips:

1.   Over-payment makes a big difference

Did you know that by paying just a few dollars extra off your home loan each month you can make a huge difference? If you have a $300,000 loan over a 30 year loan term, paying an extra $50 per month could slash two years off the life of your loan – not to mention reduce your total interest charges by over $20,000!* Surely that’s an incentive to reduce the number of takeaway coffees! And if you can manage to pay an extra $50 per week, you could save over $105,000 and more than seven years!^

2.   Adjust your spending to enable over-payments

Most loans will allow you to make extra payments, so where possible it’s a good idea to consider paying more than the minimum amount. Not only does this enable you to pay off your loan faster, but it will enable you to get ahead on your repayments. It means that if at some point you are unable to make one of your repayments, you may have paid off enough previously to cover it (however, be sure to advise your lender in advance; you may need to redraw the repayment amount from your loan and deposit it into your bank account so that the direct debit loan repayment can still occur).

3.   Make a lump sum (or mini lump sum) repayment

If you receive a lump sum such as a tax return, a bonus from your employer, or any other payments, put them into your loan account. Even if you plan to spend this money, similar to the above point, start with them on your loan and redraw them as appropriate (provided your loan has redraw or an offset account)

4.   If your loan has redraw or offset, don’t use a savings account as well

Even if you plan to use the savings, many would recommend that you keep them in your loan account as redraw, or in your loan offset account. By doing this, you are reducing the interest liability on your loan, which is likely to be at a higher interest rate than you would get on a savings account. Thus it is effectively earning you a higher interest rate. Further, interest on a savings account may be taxable, meaning you could be liable for a tax debt come tax-return time, or could reduce your tax refund.

5.   Remember: There are more than four weeks in a month

Many people work their finances on the misconception that there are four weeks in a month. Those who are paid fortnightly might set aside every second pay to go towards their monthly loan repayments. However, on average there are, in fact, 4.3 weeks in a month. This is good news, as it means that if you are paid fortnightly and set aside every second pay, you will, in fact be setting aside 13 pays – not 12 – per year to cover monthly mortgage repayments. (52 weeks = 26 pays, therefore 13 are allocated to repayments). Put the extra pay onto your loan!

6.   Have your wages paid into your offset

Say you get paid $5,000 a month and those funds sit in your offset account for a few extra days a month – you could save a few hundred dollars in interest every year. Whilst it might not sound like much, it all adds up! The interest is debited at the end of each month and usually calculated daily, so you can greatly reduce the interest that you pay.

7.   Align your mortgage repayments with your income

For example, if you are paid fortnightly, then make your mortgage payments fortnightly. By doing this, you can cut down on interest payable and save a lot of money over the course of your home loan.


Examples quoted in this article should be used as an indication only and as such should not be relied upon without first seeking independent financial advice based on borrower’s individual circumstances.
*Based on repayments of $ 1,946 per month at 6.50% pa on a loan of $300,000 over an original loan term of 30 years (original repayments $1,896 per month).
^Based on repayments of $ 2,111 per month at 6.50% pa on a loan of $300,000 over an original loan term of 30 years (original repayments $1,896 per month).

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Katie Adema

Katie previously worked as a journalist across print and radio before making the switch to PR. Her work has appeared in Green Lifestyle Magazine and online publication The Kids Are Alright, and more recently she has written myriad articles for newsletters, magazines, websites and online publications.

The opinions expressed in this article are the opinions of the author(s) and not necessarily those of Homeloans Ltd.