9 strategies to pay off your home loan faster

1. Make extra repayments

Adding even small amounts to your regular repayments can significantly reduce the term of your loan. For example, an additional $100 per month can shave years off a 30-year mortgage and save you tens of thousands in interest over the life of the loan.

Example: On a $400,000 loan at 4% interest, an extra $100 monthly could reduce your loan term by 3 years and save you over $30,000 in interest.

Tip: Check if your lender allows extra repayments without penalty, especially for fixed-rate loans.

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2. Switch to bi-weekly payments

Instead of making monthly payments, pay half of your monthly installment every two weeks. This results in 26 payments a year, effectively making one extra monthly payment annually. However, ensure that your lender processes the payments bi-weekly rather than annualizing them. If the bank annualises your repayments, the total amount you repay will remain the same as a standard monthly payment schedule, and you won’t achieve the intended benefits of shortening your loan term.

Example: If your monthly payment is $2,000, switching to bi-weekly payments of $1,000 could result in paying an additional $2,000 annually. This extra amount can help reduce a 30-year loan by about 4 years and save tens of thousands in interest, provided your lender applies the payments as they are made.

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3. Use offset accounts

An offset account links to your home loan and reduces the interest you pay by offsetting the balance against your loan amount. The more money you keep in the account, the less interest you’ll accrue.

Example: If you have a $20,000 offset balance on a $300,000 loan with a 4% interest rate, you could save around $800 in interest annually. Over a decade, this could add up to $8,000 or more in savings, depending on your account balance.

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4. Round up your payments

Round up your repayments to the nearest hundred. For instance, if your monthly repayment is $1,760, pay $1,800 instead. The small difference adds up over the years.

Example: Rounding up by $40 per month equates to an additional $480 annually. Over a 10-year period, this could reduce your loan balance by nearly $5,000 and save significant interest.

Tip: Automate the rounded-up payments to make it effortless.

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5. Use windfalls wisely

Direct any windfalls, such as tax refunds, bonuses, or inheritance, toward your mortgage. These lump-sum contributions can make a significant impact on reducing your loan term.

Example: Applying a $10,000 tax refund to a $400,000 loan early in its term could reduce the loan term by about 2 years and save over $25,000 in interest.

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6. Avoid redraw temptations

If your loan has a redraw facility, resist the temptation to withdraw extra repayments unless absolutely necessary. Keeping these funds in the loan helps reduce interest and speeds up repayment.

Example: Leaving $10,000 in redraw over 5 years on a $400,000 loan at 4% interest could save you around $2,000 in interest.

Tip: Treat your mortgage as a non-touchable savings account.

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7. Shorten your loan term

If possible, negotiate with your lender to reduce the loan term from 30 years to 25 or 20 years. While this increases monthly repayments, it significantly reduces interest paid over the life of the loan.

Example: A $400,000 loan at 4% interest over 25 years instead of 30 years would save you over $50,000 in interest, though monthly payments would increase by about $200.

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8. Shop around for better deals

Lenders often compete for customers. If your current lender isn’t offering competitive rates or flexible terms, consider switching. A small reduction in interest rates can lead to significant savings.

Example: Switching from a 4% interest rate to a 3.7% rate on a $400,000 loan could save you approximately $60 per month, or $21,600 over 30 years.

Tip: Ask your current lender for a rate review before switching, and check if the fees included make the switch worth your while.

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9. Budget for additional payments

Create a budget to identify areas where you can cut back and allocate the savings to your home loan. Even minor lifestyle adjustments, like reducing dining out, can free up funds for extra repayments.

Example: Cutting back $100 per week on discretionary spending adds up to $5,200 annually. Redirecting this amount toward your home loan could save thousands in interest and reduce your loan term by years.

Tip: Track your spending to find opportunities to redirect money toward your loan.

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Paying off your home loan faster requires discipline, strategic planning, and smart financial decisions. By adopting these strategies, you can save money on interest and achieve financial independence sooner. Start today and watch your mortgage balance shrink faster than you thought possible.