Paying off a home loan a few years early can save tens of thousands of dollars in interest, and most of the levers are simple and within your control. None of them are tricks. They work because home loan interest is usually calculated daily on your balance, so anything that lowers that balance, or the rate applied to it, compounds in your favour over time. Here are the main ones, drawn from ASIC’s Moneysmart guidance.
Chase a lower rate, then keep repayments the same
The single most powerful move is often a lower interest rate. But the mistake most people make is letting their repayments fall when the rate drops. Moneysmart’s advice is the opposite: if you switch to a lower rate, keep repaying at the higher amount. The extra now goes straight to the principal, and you finish the loan years sooner. It is also worth reviewing your rate regularly rather than assuming yours is still competitive.
Switch to fortnightly or weekly repayments
This one is widely misunderstood. The saving does not come from the frequency itself, it comes from how the amount is worked out. If you take your monthly repayment, halve it, and pay that every fortnight, you make 26 payments a year, which equals 13 monthly repayments rather than 12. That is a whole extra month’s repayment each year, going straight onto the principal. Weekly repayments work on the same principle. The key is that the fortnightly amount is half your monthly repayment, not your annual repayment divided by 26.
Make extra repayments and drop in lump sums
Extra repayments can cut years off a loan. Because most of your early repayments go towards interest rather than principal, in the first five to eight years of a typical 25-year loan, extra money paid in during that period has an outsized effect. Directing a tax refund, work bonus or other windfall onto the loan can save thousands in interest. Just check whether your loan charges a fee for extra repayments before you start.
Use an offset account properly
An offset account is a savings or transaction account linked to your home loan. Each day, your lender subtracts the offset balance from your loan balance before calculating interest, so the more you keep in it and the longer it stays there, the less interest you pay and the sooner the loan is gone. Two cautions from Moneysmart apply:
- Weigh the cost against the saving. Some lenders charge for an offset feature through a higher rate or account fees, so it needs to save you more than it costs. If your balance will usually be small, it may not be worth paying for.
- Check it is actually working. Make sure the account is correctly linked, and confirm the saving is showing up. Refinancing or switching products can break the link, so it may need to be re-linked. Offset errors that go unnoticed can quietly cost years and tens of thousands in interest over the life of a loan.
Know how your redraw facility works
A redraw facility lets you access extra money you have paid into the loan, which gives you flexibility to get ahead without locking the money away entirely. Some lenders limit how much you can redraw, charge a fee, or delay access, so check your loan’s terms before you rely on it as your buffer.
A word on the credit card strategy
A popular idea is to run day-to-day spending through a credit card so your cash can sit in the offset account longer, then clear the card in full each month. In theory the extra days of offset reduce interest. In practice this only works if the card is paid off in full every single month, without fail. Credit card interest rates are far higher than home loan rates, so a single month of carried balance can wipe out a year of offset savings. Treat it as a discipline test, not a shortcut, and only if you already pay your card in full every month.
Avoid interest-only where you can
With an interest-only loan you pay only the interest for a set period, so the amount you owe does not reduce and you pay more interest overall. Where your goal is to pay the loan down faster, a principal and interest loan does the opposite by chipping away at the balance with every repayment.
How MS Financial Services can help
The right mix of these depends on your loan, your rate and your cash flow. Our licensed Lending & Finance team can review your loan structure, check whether your rate and features are still competitive, and model what extra repayments or an offset could save you. To get started, get in touch with our team.
Frequently Asked Questions
Does paying fortnightly really save money?
Yes, if the fortnightly amount is half your monthly repayment. That produces 26 payments a year, the equivalent of 13 monthly repayments, so you make an extra month’s repayment annually. Dividing your annual repayment by 26 instead does not create the same benefit.
Is an offset account better than just making extra repayments?
Both reduce the interest you pay. An offset keeps your money accessible while still lowering interest, whereas extra repayments reduce the balance directly but may be harder to get back without a redraw facility. Which suits you depends on how much flexibility you want, and whether the offset’s cost is worth it.
Should I use a credit card to pay my mortgage faster?
Only if you already clear the card in full every month. Credit card interest is much higher than home loan interest, so carrying even a small balance can cost more than the offset benefit you were chasing.
If my rate drops, should I lower my repayments?
Not if your goal is to pay the loan off faster. Keeping your repayments at the higher amount after a rate cut sends the difference straight to the principal and shortens the loan.