While the great Australian dream may be owning your own home, this dream doesn't really become a reality until you pay off your mortgage. Only when your lender no longer has a vested interest in your property is it truly yours. So how can you pay off your home loan sooner? MPP is here to help.
Question time The idea that you can own your own home sooner is irresistible to anyone paying off a mortgage. So how can you really pay off your debt faster? Should you refinance? Will extra features – such as a redraw facility, mortgage offset account or a line of credit – help? Or should you go for a ‘no frills’ loan instead, and make additional payments whenever you can along the way? You should ask yourself these questions and be realistic about your goals and financial situation before taking the next step.
That's interesting The interest you pay to your home loan provider is the single biggest cost you will face when paying off your mortgage. So surely the easiest way to pay off your loan sooner is to find a loan with a low rate? Research sites such as www.cannex.com.au to find out what the lenders are offering. Look for the ‘comparison rate’, which takes fees into account. ‘Honeymoon’ and ‘introductory’ loans may sound appealing, but the savings they offer tend to be short-lived so won’t help you achieve the goal of owning your home sooner. Once the honeymoon is over, you could end up with a more expensive loan. Some loans labelled ‘standard home loans’ may be more expensive than others. Mortgages with the lowest rates of interest may not be heavily promoted, andbanks and lenders might not offer you these options unless you ask, so it pays to do some research yourself.
The refinance dance If you’re refinancing, make sure you understand all associated fees and charges or you may end up paying more than you had bargained for. There’s no point refinancing unless you can be sure you’ll be better off even after you pay the relevant termination fees, application fees, legal costs, stamp duty and other associated charges.
Friendly features The There are a number of features that may help you save money and pay off your loan sooner. For example, a redraw facility will allow you to make extra payments and withdraw from this money if you need it. This will reduce the amount you owe on your loan but also allows a degree of flexibility should you need to access this cash. Similarly, a mortgage offset account may help reduce the principal and interest you owe. Your mortgage will be linked to a savings account into which your salary and other cash is deposited. You then withdraw the cash you need to pay bills. For as long as the money sits in the account, it is ‘offset’ against your loan and so reduces your interest bill. You could also consider a line of credit – an option that tends to better suit investors and businesses rather than owner-occupiers.
Prepare to pay Some mortgage experts recommend you pay your mortgage fortnightly rather than monthly. This is because if you sign up to a monthly arrangement, your payment is due on the same date each month – that’s 12 payments a year. When you pay fortnightly, your monthly payment is divided in half, but because there are 26 fortnights in a year, you end up making two extra payments in a year. You will save in two ways. Firstly, because you are making the extra payments and secondly, by making payments more often you reduce the amount of interest payable (as interest is calculated daily) and this is where the real savings come into effect. By paying fortnightly, you can take years off your loan and seriously reduce the interest paid – your biggest cost.
Supersize me The other way to pay off your loan sooner is to either increase the amount of your payments or make extra payments along the way. If you are going to make extra payments, the recommendation is that you make these in the first eight years of your loan, as this is when you pay off the bulk of the interest. Extra payments in the last stage of your mortgage are less effective in cutting a lot of time off your mortgage, because most of your repayments pay off the principal, with comparatively little needed to cover the interest. But extra payments still save interest.
The idea that you can own your own home sooner is irresistible to anyone paying off a mortgage. So how can you really pay off your debt faster? Should you refinance? Will extra features – such as a redraw facility, mortgage offset account or a line of credit – help? Or should you go for a ‘no frills’ loan instead, and make additional payments whenever you can along the way? You should ask yourself these questions and be realistic about your goals and financial situation before taking the next step. 
The interest you pay to your home loan provider is the single biggest cost you will face when paying off your mortgage. So surely the easiest way to pay off your loan sooner is to find a loan with a low rate? Research sites such as 
you may end up paying more than you had bargained for. There’s no point refinancing unless you can be sure you’ll be better off even after you pay the relevant termination fees, application fees, legal costs, stamp duty and other associated charges.
The other way to pay off your loan sooner is to either increase the amount of your payments or make extra payments along the way. If you are going to make extra payments, the recommendation is that you make these in the first eight years of your loan, as this is when you pay off the bulk of the interest. Extra payments in the last stage of your mortgage are less effective in cutting a lot of time off your mortgage, because most of your repayments pay off the principal, with comparatively little needed to cover the interest. But extra payments still save interest.