How to Pay Off Your Mortgage Faster
Knowing how to pay off your mortgage early is something all homeowners should consider to reduce debt while building wealth. Doing so can also help your credit rating and free you up to invest in another property or other assets.
No one wants to be saddled with hundreds of thousands of dollars in debt for decades if they can avoid it. The good news is there are practical ways to reduce your mortgage. How well you implement — and stick to — these strategies could determine whether you shave months, years or even decades off your loan term, and save a fortune in the process.
Whether you’re a first home buyer or you’ve had your mortgage for years now, you can benefit from any or all of the following measures.
1. Make extra payments
Extra repayments can cut years off your mortgage. While making extra payments may seem obvious, it’s worth doing some simple calculations to see how much time and money you could save with a regular top-up.
For example, let’s say you’ve taken out a $500,000 mortgage over 25 years with a variable interest rate of 4.34% and monthly repayments of $2,744. The total cost of this mortgage will be $823,185.
However, if you paid an additional $100 a month from the beginning, the total repayment would be $800,658 — saving you around $22,500 and reducing the loan term to 23 years and six months. Paying an extra $50 a month would reduce your total repayment to $811,484 and the loan term to 24 years and three months.
For the first five years of a principal and interest mortgage, most of your repayments go toward interest. Any extra payments you make early on can have a significant impact down the track. This could include tax refunds, bonuses, or any lump sums you receive. Making extra payments also gives you a buffer in case interest rates rise or your financial situation changes.
Most lenders don’t charge fees for extra payments on standard mortgages, but check with your lender to confirm.
Consider using your ATO tax return to make a lump sum repayment. Even a one-off $1,000–$2,000 top-up early in your loan can shave months off your term and save thousands in interest.
2. Switch to fortnightly payments
Switching to a fortnightly repayment structure will save you money simply because you’re doubling the payment frequency. As long as your fortnightly repayments are half your monthly amount, you’ll effectively make the equivalent of an extra month’s repayment each year — 26 fortnights vs. 12 months.
» MORE: How to calculate mortgage repayments
3. Switch loans/find a lower interest rate
Whether you’re a first-home buyer or a long-time borrower, you should always be looking for the best available interest rate.
Keep in mind that switching lenders may come with costs such as exit fees, discharge fees, or new loan setup charges. Do the maths — possibly with help from a mortgage broker or financial adviser — to make sure you come out ahead.
If you find a better rate elsewhere, you can also ask your current lender to match it. This could save you the paperwork and hassle of changing lenders altogether.
Once you’ve switched to a lower rate, consider continuing to make repayments at your previous (higher) level — it’s a simple way to accelerate your loan reduction without increasing your monthly budget.
Found a better rate elsewhere? Show it to your current lender before refinancing — they might match it to keep your business, saving you time and upfront fees.
4. Take out a fixed interest loan
Fixed interest loans may offer a lower rate than variable loans, typically for a set period such as the first five years.
However, fixed loans often come with restrictions. You may not be able to make extra repayments or access features like redraw or offset accounts. That means they may not help you reduce your mortgage as effectively as other strategies — unless you invest the money you save at a lower interest rate, which may carry more risk than is suitable for some borrowers.
5. Debt consolidation
If you have high-interest debts — such as personal loans, car loans or credit cards — consolidating them into your mortgage can reduce your overall interest burden.
For example, after living in your home for a year, you might be eligible for a loan top-up if your loan-to-value ratio is below 80%. You could use this to pay off your other debts. Alternatively, you might consolidate debts at the start of your loan, especially if they’re with the same lender.
Debt consolidation also simplifies your finances, with just one repayment to manage. And it may free up room in your budget to apply other mortgage reduction strategies.
6. Invest your additional income
If you earn extra income — from a side business, investments, or even selling collectibles — you can use it to make lump sum repayments on your mortgage.
Investing in shares, ETFs or other assets could potentially help you grow your money faster than your mortgage interest rate, but be mindful of the risks. Speak to a financial adviser to determine the right strategy for your situation.
If you have niche expertise (like in coins, LPs, or online reselling), you may be better off investing and reinvesting proceeds to later apply to your mortgage in larger chunks.
High-return investments might outperform your mortgage rate, but they always come with added risk. Speak to a financial adviser about your risk tolerance and goals before investing. If you're risk-averse or prefer certainty, extra repayments on your mortgage offer a more reliable return.
7. Open a redraw facility
A redraw facility allows you to make additional repayments and withdraw those funds later if needed — for emergencies, renovations, or unexpected costs.
The benefit is that the funds reduce your mortgage balance while they’re sitting in the account. For example, if you owe $100,000 and have $10,000 in your redraw, you only pay interest on $90,000.
Talk to your lender about setting up a redraw facility if your loan doesn’t already include one.
8. Open an offset account
An offset account is essentially a savings or transaction account linked to your home loan. The account balance is “offset” against your loan principal, reducing the amount of interest you pay.
Like redraw facilities, offset accounts can be a powerful tool to pay off your mortgage faster — especially when used alongside regular extra repayments.
» MORE: How to make the most of your offset account
Offset accounts offer easier access to your money than redraw facilities. If flexibility is key, consider prioritising an offset-linked loan.
The big picture: Make your mortgage strategy work for you
Smart mortgage reduction isn’t about doing everything — it’s about doing what works for you.
As tempting as it is to throw everything at your loan straight away, especially as a first-time buyer, it pays to pace yourself instead of being overzealous with repayments.
Start with a realistic budget that gives you breathing room — not one that stretches you to your limit. Once you’ve shown you can consistently live within it — say after six months — you can take a more aggressive approach to reducing your mortgage.
Remember: a mortgage is a marathon, not a sprint. Focus on long-term financial stability.
DIVE EVEN DEEPER
Alan Hartstein
Alan Hartstein