Smart strategies to pay down your home loan faster

5 mins
Updated
February 20, 2025

Owning your home outright may seem like a distant dream, but with the right strategies, you can reduce your loan term and save thousands in interest. Paying down your home loan faster not only helps you achieve financial freedom sooner but also gives you peace of mind knowing you’re reducing your debt.

Make extra repayments

Adding even a small amount to your regular repayments can make a significant difference over time.

How it works:

When you make extra repayments, the additional money directly reduces the loan principal (the amount you borrowed). This means future interest is calculated on a smaller balance, accelerating your loan repayment.

Tips for success:

  • Set up automated extra repayments to align with your pay cycle.
  • Allocate unexpected windfalls, such as tax refunds or bonuses, toward your loan.

Example: If you have a $500,000 loan at a 5% interest rate over 30 years, paying an extra $200 monthly could save you over $60,000 in interest and cut years off your loan term.

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Round up your payments

Rounding up your repayments is a simple yet effective way to pay extra without feeling the pinch.

How it works:

Instead of paying the exact repayment amount, round it up to the nearest $10, $50, or $100. The difference adds up over time, reducing your principal faster.

Example: If your regular repayment is $1,780, round it up to $1,800. The additional $20 each repayment adds up to $240 annually, which goes directly toward reducing your loan balance.

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Make lump-sum payments

If you come into a large sum of money, consider applying it to your mortgage.

How it works:

Lump-sum payments significantly reduce the principal, which can lower the overall interest you’ll pay.

When to consider:

  • After receiving a tax refund, bonus, inheritance, or selling an asset.
  • If your loan allows penalty-free lump-sum contributions (check your terms).

Example: A $20,000 lump-sum payment on a $400,000 loan at 4% interest can save approximately $20,000 in interest and shave years off your loan term.

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Refinance your loan

Refinancing can help you secure better terms and free up funds to pay down your loan faster.

How it works:

Refinancing involves replacing your existing loan with a new one, ideally with a lower interest rate or more favorable conditions. This can reduce your monthly repayments or allow you to redirect savings toward extra repayments.

Key considerations:

  • Factor in refinancing costs, such as exit fees or application fees.
  • Aim for a new loan term aligned with or shorter than your remaining loan term to avoid paying more interest in the long run.

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Use an offset account

An offset account is a savings or transaction account linked to your home loan, which reduces the interest charged on your loan.

How it works:

The balance in your offset account is subtracted from your loan balance when calculating interest. For example:

  • Loan balance: $400,000
  • Offset account balance: $20,000
  • Interest is calculated on $380,000 instead of $400,000.

Tips to maximise benefits:

  • Deposit your salary and savings into the offset account.
  • Use it as your primary account for everyday transactions to keep the balance high.

Example: Maintaining an average balance of $10,000 in an offset account on a $400,000 loan at 4% interest can save over $25,000 in interest and reduce the loan term by more than a year.

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Additional tips for paying off your home loan faster

1. Switch to weekly or fortnightly repayments

Making weekly or fortnightly repayments instead of monthly can result in extra repayments each year. It’s important to check that if you opt for this method you should check with your bank that they are not annualising your repayments which is essentially paying the same amount you would in monthly repayments, but in smaller repayments.                                                                                                                

2. Avoid lifestyle creep

As your income increases, resist the urge to increase your spending. Instead, direct the extra income toward your mortgage.

3. Review your budget regularly

Look for areas where you can cut expenses and redirect the savings to your home loan.

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The benefits of paying down your home loan faster

  • Save money on interest: The faster you pay off your loan, the less you’ll pay in interest over time.
  • Achieve financial freedom: Owning your home outright gives you greater financial flexibility and peace of mind.
  • Build equity: Faster repayments increase the equity in your home, giving you more options for future financial goals.

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Paying off your home loan faster is achievable with the right strategies and discipline. Whether it’s through extra repayments, rounding up payments, lump sums, refinancing, or offset accounts, every little bit helps.

Disclaimer
Prepared by Beck McLean Finance Pty Ltd ABN 80 632 809 833. This information does not take your personal objectives, circumstances or needs into account. Always read the disclosure documents for products and services before deciding on a product or service, and consider seeking independent legal, financial, taxation or other advice for your unique circumstances.
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