How to pay off your home loan faster
Learn how to pay off your home loan faster with extra repayments, fortnightly payments, redraw facilities and refinancing strategies. Understand the pros, costs and considerations for Australian borrowers.
You can pay off your home loan faster by reducing the principal (amount you’ve borrowed) sooner, and this lowers the interest charged on your loan. Some ways you can do this include increasing payment frequency, making lump sum or extra repayments, using offset accounts, or reviewing your loan structure.
What affects how quickly you can pay off a home loan?
Three main factors determine how fast you can pay off a home loan:
- The interest rate charged.
- The size of the loan.
- Additional payments you make above the minimum repayment each period.
These factors determine how quickly you can pay off your home loan. A larger loan typically attracts more interest over time, while a lower interest rate and extra repayments can help reduce both the total interest paid and the length of the loan. Small changes can make a noticeable difference when compounded over a 25–30 year loan term.
Making more frequent repayments
Switching from monthly to fortnightly repayments is one way some borrowers reduce their loan term. There are 26 fortnights in a year but only 12 months. A borrower paying half their monthly amount every two weeks means they can end up making one extra monthly repayment each year.
For example, a borrower with a $2,000 monthly repayment pays $24,000 per year on a monthly repayment. Switching to fortnightly payments of $1,000 means 26 payments annually; $26,000 in total. That extra $2,000 per year goes to reducing principal, which lowers the balance on which future interest is calculated.
Before changing your repayment schedule, check with your lender that extra payments will be applied to the principal balance. Some lenders may handle payment frequency changes differently.
Making extra repayments
Consistent additional monthly contributions
Paying a fixed extra amount each month above the minimum repayment helps reduce your loan balance faster. Even small extra repayments can add up over time. Every extra dollar goes towards your principal, reducing the amount of interest charged in future repayments and helping you pay off your loan sooner.
Lump sum payments
A tax refund, work bonus, inheritance, or other windfall can be used to make a lump sum repayment on your home loan. This reduces your loan balance straight away, helping you pay less interest over the life of the loan. The biggest benefit usually comes from making lump sum repayments earlier in your loan term, when your balance is highest.
Variable-rate loans generally allow unlimited extra repayments. Fixed-rate loans often have annual limits on extra repayments, and exceeding these limits may result in fees or break costs. Check with your lender before making a large lump sum repayment.
Understanding redraw facilities
A redraw facility lets you access any extra repayments you've made above your minimum home loan repayments. While those funds remain in your redraw, they reduce your loan balance and the amount of interest you're charged. If you redraw the money later, your loan balance will increase, which means you'll pay more interest going forward.
One of the main benefits of a redraw facility is flexibility. You can use extra cash to reduce your loan balance and save interest, while keeping those funds available if you need them. This can be more effective than leaving money in a separate savings account.
Redraw features vary between lenders. Some allow fee-free redraws with quick access to funds, while others may charge fees or limit how often and how much you can redraw.
Before relying on a redraw facility, check your loan terms to understand any fees, limits, or access conditions that apply.
Unloan offers unlimited redraw with no fees. You can make extra repayments to reduce interest and still access those funds if you need them. Learn more about Unloan’s redraw facility.
Understanding offset accounts
An offset account is a savings or transaction account linked to your home loan. Instead of reducing your loan balance, the money in the account reduces the balance that interest is calculated on.
For example, if you have a home loan of $500,000 and keep $20,000 in your offset account, you'll only be charged interest on $480,000. This can reduce the amount of interest you pay and help you pay off your loan faster.
The main difference between an offset account and a redraw facility is how you access your money. Funds in an offset account remain in a separate account and can be accessed immediately, just like a regular bank account. With a redraw facility, extra repayments are paid directly into your loan and need to be withdrawn later if you want to use them.
Both options can help reduce interest costs. An offset account offers easy access to your money, while a redraw facility requires an extra step to access funds, which some borrowers find helpful for managing spending.
Whether an offset account is worth it depends on how much money you keep in it. If you only maintain a small balance, any monthly account fees may outweigh interest savings.
Please note Unloan doesn’t currently offer an offset account.
Reviewing your interest rate
Home loan interest rates vary between lenders and loan types, and market rates can change over time. Because of this, some borrowers choose to review their loan when their financial circumstances change or when lower rates become available elsewhere.
Refinancing can help reduce your interest costs, but it’s important to factor in the upfront costs. Common refinancing costs in Australia may include application fees, property valuation fees, settlement fees, title search fees, and mortgage registration or discharge fees. The total cost will depend on the lender, loan type, and location.
Before refinancing, it can be helpful to calculate your break-even point. This shows how long it will take for the savings from a lower interest rate to outweigh the cost of refinancing. For example, if refinancing saves you $100 per month and costs $3,000 upfront, it will take 30 months to recover those costs.
If you're on a fixed-rate home loan, additional costs may apply. Some lenders charge break fees when you exit a fixed-rate loan before the end of the fixed term, particularly if interest rates have fallen since the loan began.
Before refinancing, ask your lender for a detailed estimate of any break fees and compare the total costs against the potential savings. This can help you decide whether refinancing is likely to save you money over the life of your loan.
Repayment strategies compared
There are five main strategies that can help you pay off your home loan faster. While each approach works in a different way, they all aim to reduce your loan balance, lower interest costs, or shorten your loan term. They include:
You don't have to choose just one strategy. Many borrowers combine several approaches, such as making fortnightly repayments, putting extra income towards lump sum repayments, and using a redraw facility or offset account to keep funds accessible if needed.
What to consider before making extra repayments
Financial security and emergency savings
While making extra home loan repayments can help you pay off your loan faster, it’s also important to keep some savings accessible for unexpected expenses or changes in income.
Before directing all spare cash towards your mortgage, consider building an emergency fund that you can access if needed.
Accessible savings can help cover unexpected expenses or periods of reduced income, reducing the need to redraw from your home loan or take on more expensive forms of debt. Finding the right balance between extra repayments and emergency savings can support both your financial security and your long-term home loan goals.
Investment returns versus loan interest
Whether it's better to make extra home loan repayments or invest surplus funds depends on the returns you expect to earn. If your investment returns are higher than the after-tax cost of your home loan interest, investing may provide a greater long-term financial benefit.
However, investment returns are not guaranteed and come with risk. Before deciding between investing and paying down your home loan faster, consider your financial goals, risk tolerance and personal circumstances, and seek independent financial advice.
Interest-only versus principal-and-interest loans
On an interest-only home loan, repayments cover interest but do not reduce the loan principal. As a result, the loan balance stays the same and equity is not built through regular repayments. If your goal is to pay off your home loan faster, switching to principal and interest repayments is an important first step, as each repayment reduces the outstanding loan balance.
Prepayment limits on fixed-rate loans
Many fixed-rate home loans include a limit on how much extra you can repay each year. This is known as a prepayment limit. If you exceed this limit, your lender may charge break costs. These fees are typically based on the difference between your fixed interest rate and current market rates.
Before making a large extra repayment on a fixed-rate home loan, check your loan terms or speak with your lender to confirm your annual prepayment limit and any fees that may apply.
Tax considerations for investment properties
If your home loan is for an investment property, different tax rules may apply. In Australia, interest on an investment loan may be tax deductible when the property is rented or genuinely available for rent.
Extra repayments that reduce the loan principal may have different tax implications from interest payments.
Because tax outcomes depend on your personal circumstances and may change over time, consider seeking independent tax or financial advice before changing your repayment strategy.
Can you pay off a home loan early in Australia?
Many Australians could pay off their home loan early. However, the rules depend on whether you have a variable rate or fixed rate loan.
With most variable rate home loans, you can make unlimited extra repayments and repay the loan in full before the end of the loan term without paying an early repayment penalty.
Fixed rate home loans are usually less flexible. Many fixed rate loans limit extra repayments and may charge break costs if you pay off the loan during the fixed-rate period. These fees can be significant, particularly if interest rates have fallen since your fixed rate was established.
If flexibility is important, a variable rate home loan may be more suitable than a fixed-rate loan.
Before paying out your home loan early, review your loan contract and check for any discharge fees, ongoing fees or early repayment conditions.
Frequently asked questions
Does paying fortnightly actually make a difference?
Making fortnightly home loan repayments can help you reduce your loan balance faster. Over the course of a year, 26 fortnightly half-payments add up to 13 full monthly repayments, one more than you'd make on a standard monthly schedule. If your lender applies the extra payment to your principal, it can help lower your interest costs and shorten your loan term.
What is the difference between redraw and an offset account?
The difference between a redraw facility and an offset account is where your money is held. With a redraw facility, extra repayments are paid directly into your home loan and reduce your loan balance. With an offset account, your money stays in a separate account but reduces the balance used to calculate interest. Both can help lower your interest costs and pay off your home loan faster.
Are there fees for making extra repayments?
For variable rate loans, you can usually make extra repayments with no fees. For fixed rate loans, most lenders set an annual limit on extra repayments and exceeding this limit triggers break costs. Check the specific terms of your loan before making large extra payments.
Does the loan term shorten automatically when I make extra repayments?
Making extra repayments can help you pay off your home loan sooner, but whether your loan term automatically shortens depends on your lender.
Some lenders apply extra repayments in a way that reduces the length of your loan, allowing you to become mortgage-free sooner. Others may keep the original loan term and recalculate your minimum repayments instead. Check with your lender to understand how extra repayments affect your loan.
Is it better to reduce the loan term or keep the term and redraw?
Reducing the loan term, or keeping higher repayments, builds equity faster and reduces total interest paid. Keeping the loan term and using a redraw facility means more flexibility, allowing you to more easily access those funds if your circumstances change. The best option depends on your financial situation. Borrowers who prioritise saving interest may prefer a shorter loan term, while those who value flexibility may benefit from keeping funds available through a redraw facility.
Can I pay off my home loan in 5 or 10 years?
Paying off a 25–30 year home loan in 5–10 years typically requires making significantly higher repayments than the minimum required. The amount you'll need to pay depends on your loan size, interest rate and available income.
Use Unloan’s borrowing power calculator or repayment calculator to help you estimate how much extra you'll need to repay each month.
About Unloan
Unloan is a low-rate variable home loan built by CommBank. Unloan won the Canstar Outstanding Value Award for Variable Home Loan Lender in 2023, 2024, 2025, and 2026. The variable rate includes a loyalty discount that grows by 0.01% p.a. every year you stay (up to 30 years).
Unloan charges no fees*, no application fee, no ongoing fee, no exit fee, and no change fee. Unlimited free redraw means extra repayments stay accessible if you need them.
Apply online in minutes and manage your loan through the Unloan app. Live Australian support from home loan specialists is available when you need it.
Unloan is a division of Commonwealth Bank of Australia.
Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. If you currently have an Unloan home loan with an active Lender’s Mortgage Insurance (LMI) policy the maximum amount you can borrow across all Unloan loans is $3,000,000. Please note Unloan currently doesn’t offer loans with an LMI premium. In some cases, depending on the property’s location or type, we may only be able to lend you up to 70% of the property’s value.
Unloan offers a 0.01% per annum loyalty discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The loyalty discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
Unloan is a division of Commonwealth Bank of Australia, and Commonwealth Bank does not provide tax (financial) advice under the Tax Agent Services Act 2009 (Cth). You should consider seeking independent tax advice from a registered tax agent, accountant or adviser before you make any decisions based on this information.
Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. If you currently have an Unloan home loan with an active Lender’s Mortgage Insurance (LMI) policy the maximum amount you can borrow across all Unloan loans is $3,000,000. Please note Unloan currently doesn’t offer loans with an LMI premium. In some cases, depending on the property’s location or type, we may only be able to lend you up to 70% of the property’s value.
Unloan offers a 0.01% per annum loyalty discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The loyalty discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
Applications are subject to credit approval, satisfactory security and minimum deposit requirements. Full terms and conditions are found on our Unloan Terms and Conditions. Modified Terms and Conditions will be set out in our Notice of Variation Agreement, if you are approved. This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice.
Unloan offers a 0.01% per annum loyalty discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The loyalty discount is applied for each loan you have with Unloan.
*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.
