Pay Off Your Home Faster Calculator

Your required repayment is split in two every month. Part of it covers the interest charged on the balance since the last repayment; whatever is left reduces the balance. Early in a 30-year loan that split is brutally lopsided — on a $520,000 loan at 6.15%, the first month’s repayment of about $3,170 is roughly $2,665 of interest and only about $500 of principal.

An extra repayment is not split. It has no interest to cover, so all of it comes off the principal. That is why $400 extra does not simply add $400 of progress: it removes $400 from the balance that every future month’s interest is calculated on, for the remaining life of the loan. The saving compounds against you when you do nothing, and for you the moment you start.

It is also why timing matters more than amount. The same extra dollar saves far more in year two than in year twenty, because it has more years left to stop accruing interest. If you are choosing between starting small now and starting properly next year, start small now.

There are only four ways to clear a mortgage early, and they are not equally available to everyone.

1. Switch to fortnightly. The only one that is free. Pay half your monthly repayment every fortnight and the 26-fortnight year quietly delivers a thirteenth monthly payment. On the loan above it is worth roughly five and a half years and $136,000 without finding a cent of new money. The catch is that your lender must schedule it as half-the-monthly, not as a recalculated fortnightly amount.
2. Put your savings in an offset. Interest is charged on the loan balance minus the offset balance. A $30,000 offset on a 6.15% loan saves about $1,845 a year — tax-free, since it is a cost you avoid rather than income you earn — and the money remains available.
3. Increase the repayment. The reliable one. Set it and it happens whether or not you remember, and it is the only lever that keeps working when your savings get spent.
4. Throw lump sums at it. Bonuses, tax refunds, an inheritance. The largest single-day impact, and the one most often redirected into something else on the way.

In pure interest terms they are identical. A dollar sitting in an offset account and a dollar paid off the loan both reduce the balance interest is charged on by exactly one dollar. The calculator above will show you the same saving either way.

The difference is what happens when you need the money back. Money in an offset is a bank balance — withdraw it and nothing changes about the loan. Money paid onto the loan has to be redrawn, and redraw is at the lender’s discretion: it can be reduced, repriced, or withdrawn entirely, and several Australian lenders have done exactly that during credit tightening.

There is also a tax dimension that catches people out. If the property is, or might one day become, an investment, redrawing money you previously paid off the loan creates new borrowing whose deductibility depends on what you spend it on — not on what the loan is secured against. An offset avoids that problem entirely because the loan balance never changed. If there is any chance your home becomes a rental, the offset is the safer structure, and it is worth talking to us and to your accountant before you choose.

Is any of the loan fixed? Fixed-rate loans cap extra repayments, commonly between $10,000 and $30,000 a year, and break costs on a fixed loan can run to five figures. Find your annual limit before you make a lump sum payment, not after.

Is this the most expensive debt you have? Clearing a 6% mortgage while carrying a 20% credit card is a loss. Work down from the highest rate, and treat any non-deductible debt as more expensive than its headline rate suggests.

Is the rate itself the problem? Plenty of people work hard at extra repayments while paying half a percent more than they need to. On a $520,000 loan, 0.5% is about $2,600 a year — often more than the extra repayment they were planning to make. Check your rate against the market before you start, which is the first thing our mortgage broking team does.

Clearing the mortgage faster is not only about being debt-free sooner. Every dollar of balance you remove is a dollar of usable equity created, and usable equity is what funds the deposit on an investment property. The households who build a portfolio rarely do it by saving a second deposit from scratch; they do it by accelerating the first loan until the equity in it can carry the next purchase.

That is the argument our Ultimate Guide to Mortgage Reduction sets out in full, and it is the reason this calculator exists. The numbers above are the first step. What you do with the equity they create is the part worth planning.