When you make your regular home loan repayment, that payment is split into two parts:
In the early years of a mortgage, a large portion of your repayment goes toward interest because your loan balance is still high.
When you make extra repayments on your home loan, that additional money usually goes directly toward reducing the principal, not interest.
This is important because:
A simple example
That extra $200 doesn’t just reduce your loan by $200. It lowers the balance on which interest is calculated every month going forward, which can translate into tens of thousands of dollars in interest savings and several years off your loan term.
A qualified mortgage broker can also help ensure your loan structure allows flexible and penalty‑free extra repayments.
Interest is calculated on your remaining loan balance. The faster that balance falls, the less interest you pay overall.
For example, on a $500,000 loan at 6% over 30 years, adding just $100 per month could reduce total interest by around $40,000.
Rather than paying your loan off over 30 years, extra repayments can reduce your term to 28, 25 or even 22 years, depending on how much extra you contribute.
Equity is the difference between your property’s value and your loan balance. Extra repayments accelerate equity growth, which may allow refinancing, upgrading, or investing sooner.
Many homeowners find that being ahead on their mortgage provides peace of mind and makes long‑term financial planning feel more achievable.
Scenario | Interest Paid | Loan Term |
Standard repayments | ~$579,000 | 30 years |
+$100/month extra | ~$539,000 | ~26 years |
Estimates only. Actual results depend on loan terms, rates, and individual circumstances.
STRATEGY
Switching from monthly to fortnightly repayments results in 26 half‑payments per year, which equals 13 monthly repayments instead of 12 - effectively one extra repayment annually.
Setting automatic transfers on payday removes reliance on willpower and keeps your strategy consistent.
Our client-centric approach ensures that your financial needs are always foremost in our dealings. We’re committed to helping you get your finances in order through tailored, one-to-one service.
Check your statements for low‑value expenses such as unused subscriptions or duplicate services. Redirecting even $50–$100 per month can make a measurable difference over time.
Tax refunds, bonuses or inheritances can significantly accelerate progress. Some homeowners apply 50% to their mortgage and 50% to other goals.
The calculator shows what’s possible; a broker helps make it optimal. A broker adds value when your rate is no longer competitive, your loan limits extra repayments or redraw, or you want to restructure using splits or offsets—especially if you own both investment and owner-occupied property or want to pay your loan down faster without losing flexibility. Think of it as an annual home loan health check.
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Yes, but fixed-rate loans usually have limits. Most lenders allow $10,000-$30,000 per year in extra repayments during the fixed period. Paying more, or settling the loan early, may trigger break fees. Always check your loan terms or speak with a mortgage broker before making extra repayments.
Both reduce your loan balance and interest:
You can use both together to accelerate loan reduction.
Generally, no. Extra repayments shorten your loan term but your scheduled repayment stays the same. Some lenders allow “recasting” to reduce the payment, though this is uncommon in Australia.
Yes, if your loan has a redraw facility, which lets you withdraw extra repayments for emergencies. Note: some lenders charge fees, limit withdrawals, or take a few days to release funds. An offset account provides instant access while still reducing interest. A broker can help identify loans with flexible redraw or offset options.
Extra repayments give a guaranteed return equal to your interest rate, while investments may earn more but carry risk. Many homeowners use a mix: extra repayments for certainty, investments for growth. For large sums, seek personalised financial or tax advice.
Extra repayments reduce your loan balance permanently. An offset account keeps your money accessible while lowering interest charges. Many loans allow both: offset for flexibility and extra repayments for committed debt reduction.
A sensible starting point is 5–10% of your regular repayment.
For example:
Then:
Avoid overcommitting. Extra repayments should feel sustainable, not stressful.
Before increasing repayments, check:
If yes to any, start smaller or use an offset instead.
For investment properties, mortgage interest is usually tax deductible. This means that while making extra repayments reduces the interest you pay, it also reduces the interest you can claim as a tax deduction. There’s a trade-off between saving interest and losing part of the tax benefit. Because of this, many investors choose to prioritise paying down their owner-occupied home first, where interest isn’t tax deductible, and keep investment loans for longer. This isn’t a one-size-fits-all approach and depends on your income, marginal tax rate, and long-term goals, so it’s important to speak with your accountant before making changes.
Variable rate loans typically allow unlimited extra repayments and provide access to redraw or offset accounts, making them well suited to borrowers who want flexibility or plan to reduce their debt aggressively as their circumstances change. Fixed rate loans, on the other hand, usually cap extra repayments each year and may charge break fees if you repay too much or exit early, with limited or no redraw access. Because of these restrictions, fixed loans suit borrowers who prioritise rate certainty over flexibility. Many borrowers choose a split loan—part fixed for stability and part variable for extra repayment flexibility—to balance certainty and control. With access to 30+ lenders, AFMS can compare loan features and structures to match your strategy and long-term goals.
A redraw facility lets you access extra repayments you’ve already made on your loan. For example, if your minimum repayment is $2,500 and you pay $2,800, the additional $300 may be available to redraw later for things like emergencies, short-term cash-flow issues, or unexpected repairs. It’s important to note that being “ahead” on your loan doesn’t always mean those funds are redrawable. Redraw terms vary by lender—some charge fees, impose limits on how often or how much you can redraw, or take a few business days to release funds. Compared with offset accounts, redraw can be less flexible for emergency funds. A mortgage broker can help identify lenders with favourable redraw policies and avoid surprises down the track.
Both extra repayments and offset accounts reduce the interest you pay, but they work in different ways and suit different behaviours. Extra repayments permanently reduce your loan balance, which guarantees interest savings and creates a strong “forced savings” effect, but can reduce liquidity and may be subject to redraw limits or fees. An offset account reduces interest without reducing your loan balance, giving you full access to your money for emergencies or opportunities, although it may come with account fees and requires discipline not to spend the funds. With a 100% offset, $20,000 in an offset account has the same interest-saving effect as a $20,000 extra repayment, while remaining accessible. Many borrowers use both strategies together, and a broker can help match offset account options across AFMS lenders to your goals and cash-flow needs.
