How To Pay Off Your Mortgage Faster In 2021?

Published by Otto Dargan on February 5, 2021

The COVID-19 pandemic has been an eye-opener for many Australians as they are starting to take a hard look at their finances.

With the RBA cash rate down to 0.1%, most borrowers are looking to refinance to fixed-rate. However, both fixed and variable rate home loans have their pros and cons.

According to a survey, most mortgage brokers predict that refinancing will continue to drive mortgage activity in 2021.

Among several other reasons behind the upward trend in refinancing, one might be that people want to pay off their mortgage faster.

If you too would like to pay off your mortgage faster, check out these tips from our mortgage brokers:

Five tips to pay off your mortgage faster in 2021

1. Make extra repayments using a redraw facility

Increasing the size of your repayments is by far the most effective way to pay off your loan sooner.

Redraw facility in your home loan allows you to both save interest and pay your mortgage faster.

Any additional repayments you make goes towards the redraw balance on your home loan account. Since interest is only charged against the loan balance, redraw facility will help you in offsetting the interest charges of your loan.

Your monthly repayments will go more towards paying off the principal and lesser towards the interest charges, thereby allowing you to pay off your mortgage faster.

Case Study

Julie has a loan limit of $410,000 with an interest rate of 3.13% pa. Her minimum monthly repayment is $1,700.

However, she has been making extra repayments for a few years along with the minimum required amount on her due dates.

Julie is not anxious about making extra repayments because she knows that she can access those funds in case she needs them in the future.

By now, Julie has accumulated $50,000 in her redraw balance.

Here’s how she has been benefiting from redraw:

Loan Limit Redraw Balance Loan Balance Interest Rate Min. Monthly Repayment Interest Principal
Without redraw $410,000 P$0 $410,000 3.13% $1,700 $1,069 $631
With redraw $410,000 $50,000 $360,000 3.13% $1,700 $939 $761
Interest saved in each repayment $130

In her remaining loan term of 26 years, Julie will be able to save more than $40,000, assuming she maintains $50,000 in her redraw throughout the years.

As evident from the table, her repayments would be going more towards paying off the principal with the redraw facility.

Use the extra repayment calculator to find out how much you can save by paying extra.

2. Use a 100% offset account

An offset account is a transaction account that is linked to your mortgage. You can reduce the amount on your home loan by opting for an offset account.

A 100% offset account is one of the quickest ways to pay off your mortgage by reducing your interest payments.

It works by only charging you interest on the balance of your home loan minus the balance of your offset account.

For example, $50,000 in an offset account for a $500,000 home loan means that you will only pay the charged interest on $450,000.

In some ways, it is quite similar to redraw feature. The main difference is that you have easier access to your funds with an offset account.

Unlike a redraw feature, an offset account is a transactional account that doesn’t reduce your loan balance but offsets it so that you pay less interest.

Note: The feature of both offset and redraw is limited with fixed home loans.

3. Make biweekly/fortnightly repayments

Switching to biweekly or fortnightly repayments if you’re making monthly repayments might help you pay off your loan sooner.

This amounts to 26 fortnightly repayments in a year as there are 52 weeks in a year.

Both weekly and fortnightly repayments allow you to reduce the principal on your home loan faster since you’ll be making repayments more than once a month.

By paying half of the monthly repayments every two weeks, you make extra repayments as it’s slightly more than a real fortnightly repayment.

Case Study

Mark has a remaining loan balance of $650,000.

His interest rate is at 3.13% and he is making a monthly repayment of $2,790.

Let’s see how much he would have been able to pay extra with fortnightly repayments.

Repayment Frequency Monthly Fortnightly
Required Repayment Per Year $2,790*12 1395*26
Total Paid Per Year $33,480 $36,270
Extra Paid Per Year N/A $2,790

Mark will have paid $2,790 extra per year by switching to fortnightly repayments.

Pro-tip: Pay down high-interest debts before making extra repayments in your mortgage.

4. Renegotiate your interest rate

Our team of dedicated Customer Relationship Specialists liaise with your lender to negotiate a better interest rate on your behalf.

By securing a competitive interest rate, you could save thousands over the loan term and pay off your mortgage faster.

If you’re an existing home loan customer, you could save on your loyalty tax by shopping around and renegotiating with your lender.

Refinancing to a new loan or lender to get lower rates is also an option.

If you aren’t in a loan yet, we can negotiate the best interest rate with our lenders on your behalf.

5. Make lump sum payments

Making additional lump sum payments in the early years of your home loan will also reduce your loan term.

By saving money on interest, you can ultimately end your monthly payments sooner and put those funds towards other goals.

You can make lump sum repayments if you’ve received a tax return, inheritance, bonus or dividend payments.

For example, you get an inheritance of $40,000 and decide to make a lump sum payment on your mortgage of $300,000. The payment will go directly towards paying off the principal amount of your loan, reducing it to $260,000 (if it is capitalised). This can effectively reduce your loan term by a few months or years.


Bonus tips to pay your home loan faster

Making extra repayments and opting for an offset account is on top of our mortgage broker’s tips.

However, there are a few special mentions to help you pay off your mortgage faster:

  • Buying an investment property Getting a loan to buy an investment property will surely give you more debt but if planned right, it can also help you pay off both your home loan and investment loan. Patience is the key as you’ll have to wait for the property to rise in value.
  • Maximizing downpayment – Downpayment in your home loan is basically the deposit you have to pay at the early stage of your mortgage. If you maximize your deposit amount, you can reduce the size of your home loan to make your repayments more manageable.
  • Pay off expensive debts first The cost of debt depends on the interest rate, fees and if the tax is deductible or not. Paying off high-interest debts first will help you manage extra repayments on your home loan.
  • Downsizing – It basically refers to selling your old home and buying a smaller one. Most borrowers see this as a mortgage exit strategy when they reach the age of retirement. Downsizing can help you free up some extra cash and pay off your home loan sooner.
  • Make P&I repayments – Interest-only repayments mean that you only pay the interest on the amount that you borrowed. Hitting both principal and interest will help you better manage your repayments and end the term of your loan sooner.

Do you feel like you’re paying your home loan forever?

Whether it’s a new loan or an existing loan, you might want to keep an eye out for every opportunity to reduce your loan term.

Call us on 1300 889 743 or enquire online and speak with one of our mortgage brokers to find out how you could pay off your mortgage faster.



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