Extra Repayments: Paying Off Your Loan Faster

Making extra repayments on your home loan is one of the most straightforward ways to reduce the total interest you pay and shorten the time it takes to pay off your loan. It does not require a specific product or feature — just the ability to pay more than your minimum required repayment on a loan that allows it.

This guide explains how extra repayments work, what the interest savings look like in practice, and how to think about the strategy relative to other loan features like offset accounts and redraw facilities.

How Extra Repayments Work

Home loan interest is calculated daily on your outstanding loan balance. Every dollar you pay above your minimum required repayment reduces that balance immediately — which means interest is charged on a smaller amount from that day forward.

Over time, this compounds. A lower balance each day means less interest accumulates, which means more of your regular repayment goes toward reducing the principal rather than covering interest costs. The result is that extra repayments accelerate the rate at which your loan reduces — potentially shaving years off your loan term and saving a significant amount in total interest.

For example, making an additional $200 per month on a $500,000 variable rate loan could reduce your loan term by several years and save tens of thousands of dollars in interest over the life of the loan, depending on the rate and timing. The earlier in the loan term you start making extra repayments, the greater the compounding benefit — because reducing the balance early has more time to flow through to interest savings.

Variable vs Fixed Rate Loans and Extra Repayments

On most variable rate home loans, extra repayments are unlimited and free. You can pay as much as you want, as often as you want, without any restrictions or fees. This makes variable loans well suited to borrowers who want to get ahead on their mortgage.

Fixed rate loans are different. Most lenders cap extra repayments on fixed rate loans at between $10,000 and $30,000 per year, depending on the product and lender. If you exceed the cap, you may incur an early repayment fee. Before making large additional payments on a fixed loan, always check your loan contract or confirm with your lender what limits apply.

Lump Sum Repayments

In addition to regular extra repayments, lump sum payments — such as a tax refund, a bonus, or an inheritance — can make a meaningful difference to your loan balance. A lump sum reduces your balance in a single transaction, which immediately lowers the interest calculated from that point forward.

Whether it is better to apply a lump sum directly to your loan or hold it in an offset account depends on your situation. If you have an offset account, holding the lump sum there gives you the same interest saving while keeping the funds accessible. If you do not have an offset account, applying it directly to the loan reduces the balance permanently (subject to redraw availability).

Fortnightly Repayments: A Simple Strategy

Switching from monthly to fortnightly repayments is a straightforward way to make the equivalent of one extra monthly repayment each year without increasing the size of each payment. There are 26 fortnights in a year, so paying half your monthly repayment every two weeks results in 13 full monthly repayments rather than 12.

That extra payment goes entirely toward principal, accelerating your loan reduction and reducing your interest costs over time. Not all lenders structure fortnightly repayments this way — some simply halve the monthly repayment and schedule it twice a month, which does not produce the same benefit. It is worth confirming how your lender calculates fortnightly repayments before relying on this strategy.

Extra Repayments and Redraw

On most variable rate loans with a redraw facility, extra repayments you make are available to redraw if you need them later. This means you are not permanently locking away those funds — you can access them if an unexpected expense arises, subject to your lender's redraw rules and any applicable minimum amounts or processing times.

This combination of reducing interest now while retaining some access to funds later is one of the reasons extra repayments paired with a redraw facility are a popular approach for Australian borrowers who do not have, or do not need, an offset account.

Extra Repayments vs Offset Accounts

Both extra repayments and offset accounts reduce the interest you pay on your home loan, but they work differently and suit different borrowers.

Extra repayments reduce your actual loan balance. The money goes into the loan and reduces the principal directly. If your loan has a redraw facility, you may be able to access those funds later, but it requires a redraw request and is subject to lender conditions.

An offset account keeps the money in a separate linked transaction account. The balance offsets your loan for interest calculation purposes, but the funds remain as accessible as any everyday bank account — you can spend them, transfer them, or withdraw them at any time without contacting the lender.

If you need frequent or immediate access to your savings, an offset account is generally more flexible. If your goal is to reduce your loan balance as efficiently as possible and you do not need day-to-day access to those funds, extra repayments can be equally effective and may come with lower loan fees on a basic variable product.

Check Your Borrowing Capacity

Use our borrowing capacity calculator to see what you may be able to borrow and explore how different repayment strategies could affect your loan over time.