How to Save Thousands on Your Home Loan: Expert Repayment Strategies
Discover proven strategies to pay off your mortgage faster and save tens of thousands in interest. Learn about offset accounts, extra repayments, refinancing, and more.
Australians are sitting on over $2 trillion in mortgage debt, and with interest rates still elevated in 2026, many homeowners are looking for ways to reduce their loan costs. The good news? Even small changes to your repayment strategy can save you tens of thousands of dollars over the life of your loan.
This guide breaks down the most effective strategies to pay off your home loan faster and build equity sooner.
Understanding How Home Loan Interest Works
Before diving into strategies, it’s crucial to understand how mortgage interest is calculated in Australia.
Daily Interest Calculation
Most Australian home loans calculate interest daily on your outstanding balance. This means:
- Every dollar you pay off reduces your daily interest charge
- The sooner you make a payment, the more you save
- Keeping money in an offset account works the same as making a repayment
Example: On a $500,000 loan at 6% p.a., your daily interest charge is approximately $82. Reduce your balance by $50,000 and you’ll save around $8.20 per day in interest.
The Power of Early Repayments
Due to how amortisation works, extra payments made early in your loan have a much bigger impact than those made later:
| When Extra Payment Made | Interest Saved on $10,000 Extra |
|---|---|
| Year 1 | ~$18,000 |
| Year 10 | ~$12,000 |
| Year 20 | ~$5,000 |
This is why taking action now matters more than waiting.
Strategy 1: Make Extra Repayments
The simplest and most effective way to pay off your loan faster is to pay more than the minimum.
How Much Can You Save?
On a typical $600,000 loan at 6.2% over 30 years:
| Extra Monthly Payment | Interest Saved | Time Saved |
|---|---|---|
| $100 | $52,000 | 3 years 2 months |
| $200 | $92,000 | 5 years 8 months |
| $500 | $168,000 | 10 years 4 months |
| $1,000 | $234,000 | 14 years 6 months |
Tips for Making Extra Repayments
1. Round up your repayments If your minimum is $3,247, round up to $3,500. You won’t notice the difference, but your loan will.
2. Use windfalls wisely Direct tax returns, bonuses, and gifts straight to your mortgage before you’re tempted to spend them.
3. Set up automatic transfers Schedule an extra payment on payday so you never “forget” to pay extra.
4. Check for fees Most variable rate loans allow unlimited extra repayments. Fixed rate loans often cap extra repayments at $10,000-$20,000 per year to avoid break costs.
Strategy 2: Use an Offset Account
An offset account is a transaction account linked to your home loan. The balance “offsets” your loan principal, reducing the interest you pay.
How Offset Accounts Work
- You have a $500,000 home loan
- You keep $50,000 in your offset account
- You only pay interest on $450,000
Offset vs Savings Account
| Feature | Offset Account | Savings Account |
|---|---|---|
| Interest earned/saved | 6.2% (your loan rate) | ~4.5% (typical) |
| Tax on earnings | None | Yes (marginal rate) |
| Access to funds | Immediate | Immediate |
| Net benefit (on $50,000) | ~$3,100/year | ~$2,250/year after tax |
Maximising Your Offset
1. Salary credit Have your salary paid directly into your offset account. Even if you spend it all each month, you’ll benefit from the daily balance reduction.
2. Consolidate accounts Keep emergency funds, savings, and everyday money in one offset account rather than spread across multiple accounts.
3. Time your bills Pay bills on their due date rather than early to keep money in your offset longer.
4. Check for 100% offset Some loans only offer partial offset (e.g., up to $50,000). Ensure your loan offers 100% offset if you plan to hold significant funds.
Strategy 3: Switch to Fortnightly Repayments
This simple switch can shave years off your loan with no extra cash required.
Why Fortnightly Works
- Monthly payments = 12 payments per year
- Fortnightly payments = 26 half-payments = 13 monthly payments per year
You effectively make one extra monthly payment each year without feeling the pinch.
Potential Savings
On a $500,000 loan at 6% over 30 years:
| Payment Frequency | Monthly Payment | Total Interest | Loan Term |
|---|---|---|---|
| Monthly | $2,998 | $579,191 | 30 years |
| Fortnightly | $1,499 | $498,532 | 26 years 2 months |
| Savings | - | $80,659 | 3 years 10 months |
How to Switch
Contact your lender to change your payment frequency. Most lenders offer this option at no cost. Ensure they calculate it correctly - you want 26 fortnightly payments, not 24 (which would just be monthly payments split in half).
Strategy 4: Refinance to a Better Rate
With Australian lenders competing fiercely for business, refinancing can unlock significant savings.
When to Consider Refinancing
- Your rate is more than 0.5% above market rates
- You have 20%+ equity (to avoid LMI)
- You’ve been with your lender for 2+ years
- Your circumstances have improved (higher income, better credit)
Potential Refinance Savings
| Current Rate | New Rate | Monthly Saving (on $500k) | Annual Saving |
|---|---|---|---|
| 6.5% | 6.0% | $156 | $1,872 |
| 6.5% | 5.8% | $218 | $2,616 |
| 7.0% | 6.0% | $314 | $3,768 |
Refinancing Costs to Consider
- Discharge fee from current lender: $150-$400
- Application fee with new lender: $0-$600
- Valuation fee: $0-$300
- Settlement/legal fees: $200-$500
- Government fees: Varies by state
Pro tip: Many lenders offer cashback deals of $2,000-$4,000 for refinancing, which can cover your switching costs.
Strategy 5: Make Lump Sum Payments
Large one-off payments can dramatically accelerate your loan payoff.
Impact of Lump Sum Payments
On a $500,000 loan at 6% with 25 years remaining:
| Lump Sum | Interest Saved | Time Saved |
|---|---|---|
| $10,000 | $24,000 | 1 year 1 month |
| $25,000 | $56,000 | 2 years 5 months |
| $50,000 | $102,000 | 4 years 4 months |
| $100,000 | $178,000 | 7 years 6 months |
Sources of Lump Sum Funds
- Tax refunds
- Work bonuses
- Inheritance
- Sale of assets (car, shares, etc.)
- Downsizing to a smaller property
- Accessing equity from investment property
Strategy 6: Review Your Loan Structure
Sometimes the best savings come from restructuring rather than just paying more.
Split Loans
Consider splitting your loan between fixed and variable:
- Fixed portion: Provides certainty and protection against rate rises
- Variable portion: Allows extra repayments and offset account access
A common approach is 50/50 or 60/40 variable/fixed.
Principal and Interest vs Interest-Only
Interest-only loans might seem attractive for cash flow, but they cost significantly more:
| Loan Type | Monthly Payment ($500k @ 6%) | Total Interest (30 years) |
|---|---|---|
| P&I | $2,998 | $579,000 |
| Interest-only (5 years then P&I) | $2,500 then $3,200 | $714,000 |
| Extra Cost | - | $135,000 |
Unless you have a specific investment strategy, P&I loans are almost always better for owner-occupiers.
Strategy 7: Avoid Lifestyle Creep
As your income grows, resist the urge to upgrade your lifestyle. Instead, direct pay rises toward your mortgage.
The Pay Rise Strategy
When you receive a pay rise:
- Calculate the after-tax increase
- Increase your mortgage repayment by that amount
- You won’t miss money you never had
Example: A $10,000 pay rise = ~$7,000 after tax = ~$580/month extra repayment = $100,000+ saved in interest.
Combining Strategies: A Real-World Example
Meet Sarah: She has a $550,000 mortgage at 6.2% over 30 years.
Current situation:
- Monthly repayment: $3,373
- Total interest: $664,000
- Loan term: 30 years
After implementing strategies:
| Strategy | Action |
|---|---|
| Fortnightly payments | Switch from monthly to fortnightly |
| Offset account | Keep $30,000 in offset |
| Extra repayments | Add $200/month |
| Refinance | Negotiate 0.3% rate reduction |
New situation:
- Effective monthly repayment: $3,573 + offset benefit
- Total interest: $412,000
- Loan term: 21 years 4 months
Total savings: $252,000 and 8 years 8 months
Action Checklist
Use this checklist to start saving on your home loan today:
- Check your current interest rate against market rates
- Set up an offset account if you don’t have one
- Switch to fortnightly repayments
- Round up your repayments to the nearest $100
- Direct your next tax refund to your mortgage
- Review your loan annually for refinancing opportunities
- Allocate 50% of any pay rise to extra repayments
Key Takeaways
- Start early - Extra payments in year 1 save more than those in year 20
- Use an offset account - It’s like earning your mortgage rate tax-free on your savings
- Go fortnightly - One extra payment per year without the pain
- Review regularly - Refinancing every 2-3 years can keep you on the best rates
- Every dollar counts - Even small extra payments compound into significant savings
The difference between a passive borrower and an active one can be hundreds of thousands of dollars. Take control of your home loan today and put that money toward your future instead of your lender’s profits.
FAQs
Credit card questions, answered
How much can I save by making extra repayments?
On a $500,000 loan at 6% over 30 years, an extra $200/month can save you over $90,000 in interest and cut 7 years off your loan term.
Is it better to reduce loan term or lower repayments?
Reducing your loan term typically saves more interest overall, but lowering repayments gives you flexibility. Many borrowers choose to keep repayments high but maintain a redraw facility for emergencies.
Should I use an offset account or make extra repayments?
Offset accounts offer flexibility as funds remain accessible, while direct extra repayments may offer slightly better rates. If you value liquidity, choose offset. If you want to lock in savings, choose extra repayments.
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