Pay Off Your Mortgage – The Power of Making Extra Repayments

Pay Off Mortgage

If you want to pay off your mortgage faster, the power of making extra repayments is huge. Each extra repayment you make reduces the capital value (principal or loan amount) of the loan which means that over time you will be paying interest on a smaller amount. That means your interest bill is growing at a smaller rate and again each repayment knocks off more principal. In money terms, an extra repayment of just $100 per month (roughly $25 per week) on an average $400,000 mortgage will cut close to $42,000 off your total interest bill and nearly 3 years off your home loan (using an interest rate of 5%). Extra repayments can also give you a buffer when, inevitably, interest rates start to rise again.

So here are some great strategies to make extra repayments and pay off your mortgage faster:

  1. Move to fortnightly repayments. This takes advantage of the fact that there are 52 weeks in the year but only 12 months. If you make fortnightly repayments this mean you have made 26 repayments at half monthly repayment rate, or 13 full monthly payments by the end of the year. This is one whole month more than if you had paid monthly. This is a great strategy if you get paid fortnightly, you just make your repayments and pay dates match up. The trap with this one is to make sure that you divide your monthly repayment in half and pay that amount. Sometimes when you move to fortnightly payments banks calculate your total yearly repayment and divide them by 26, which means that you will have repaid the same amount of the loan regardless of moving to fortnightly repayments.
  2. We haven’t seen a rate cut for a while but, if the Reserve Bank of Australia (RBA) lowers rates you could keep your repayments the same. This is a great idea if you are living comfortably with your current level of repayments. This strategy has the added bonus that when interest rates eventually start to rise, it won’t be a problem for you as you have already been paying a higher rate anyway.
  3. Round up your repayments to a round number. I calculated that on our mortgage an extra $6 per month, would cut 2 mortgage repayments off the life of our loan and save us a substantial amount of interest.
  4. Utilise any lump sum payments you might get as an extra home loan repayment. Tax refunds, dividends from shares and any work bonuses can make excellent extra repayments.
  5. Ignore the honeymoon rate. Some home loans give you a honeymoon rate for a period. If you ignore this and make repayments at your long term interest rate, it puts you ahead in terms of repayments and means that you won’t be shocked when the honeymoon period ends and your interest rate rises to the ongoing rate.

Paying off your mortgage faster can be a good investment strategy. I can help you decide whether paying off your mortgage faster is the right strategy, or whether an alternative strategy would be better for you. Contact me here if you would like to know more or to organise a coffee and a chat about your financial circumstances.

I hope you found this post helpful. If you did let me know in the comments.

Kind regards,


Shelley Marsh

Disclaimer: This information is of a general nature only and has been provided without taking account of your objectives, financial situation or needs. It does not represent and is not intended to be personal advice.  Because of this, you should consider whether the information is appropriate in light of your particular objectives, financial situation and needs.  We strongly suggest that you seek professional financial advice before acting.