How to Pay Off Your Mortgage Faster: The 4 Changes Your Bank Won't Suggest

By John Hanna, strategic advisor to est. Financial

On a standard 30-year loan, you can hand your bank more in interest than you ever borrowed.

Not because you chose a bad loan. Because the bank chose the repayment, the bank chose the term, and nobody ever asked you to change either.

Here's how the system is set up, and the four changes that move the numbers the most. They're the same four in our free Mortgage Reduction Playbook.

A $600,000 mortgage can cost $1.32 million

We'll use one example loan all the way through: $600,000 over 30 years at an illustrative 6.2% p.a. The monthly repayment is $3,674.81.

Over 30 years that's $722,900 in interest. Add the $600,000 you borrowed and you hand over $1,322,900. Interest is the bigger number.

Let me make it real. In year one you repay $44,100. Only $7,100 of it comes off the loan. The rest is interest. After ten years you've paid $441,000 and still owe $504,800, which is 84% of what you started with.

And that's the trap. The early years are where extra dollars are worth the most, and they're exactly the years most people leave alone.

Number one: pay fortnightly the right way

In plain English: halve your monthly repayment and pay that every fortnight.

There are 26 fortnights in a year, so $1,837.40 a fortnight adds up to 13 monthly repayments instead of 12. That extra $3,675 a year goes straight off the principal.

On our example loan, that one change saves $159,400 in interest and 5 years and 7 months.

Here’s what nobody tells you. If you just switch to “fortnightly” in your banking app, many lenders work it out as your monthly repayment × 12 ÷ 26. That’s $1,696, not $1,837. Same money over the year, and the saving shrinks to about $1,800. The saving comes from the extra payment, not the frequency.

Prefer to pay monthly? Adding about $306 to each monthly repayment gets you almost the same result.

The rule: “It’s the extra repayment that does the work, not the calendar.”

Number two: add $50 a week

$50 a week is a dinner out, or the streaming services you forgot you’re paying for. On top of step one, it’s another $2,600 a year off the principal.

The timing is the whole trick. A dollar you pay off early stops interest being charged on it for every remaining year of the loan. A dollar paid off near the end only saves interest for the little time that’s left.

With steps one and two together, our example loan is paid off 8 years and 4 months early, and saves $231,900.

The rule: “Small money early beats big money late.”

Number three: put your savings to work against the loan

Money in a savings account earns interest, and that interest is taxed. Money in a 100% offset account reduces the balance you’re charged interest on. That saving isn’t income, so it isn’t taxed.

Take $20,000 in a savings account earning 4.5%. That makes $900 a year. Taxed at 32% (the 30% bracket plus the 2% Medicare levy), you keep $612. The same $20,000 in a 100% offset against a 6.2% loan saves $1,240 a year, and none of it is taxed. To match that, the savings account would need to pay about 9.1% before tax.

Keep $20,000 in the offset on top of steps one and two, and the example loan finishes 9 years and 5 months early, saving $285,100. That assumes the $20,000 sits there untouched. Real life won’t be that tidy, but every dollar in the offset is working for as long as it’s there.

Two things to check before you choose one. Offset loans often come in packages costing around $400 a year, which can eat most of the benefit on a small balance. And redraw isn’t the same as an offset if the home might one day become an investment property. That’s a question for your accountant before you choose.

You can test your own balance in our offset account calculator.

Number four: get your rate checked, then keep your repayment

This is the biggest lever, and nobody is going to ring you about it.

Australia's competition regulator, the ACCC, found in its Home Loan Price Inquiry that existing borrowers often pay higher rates than new customers on the same kind of loan. Loyalty doesn't get rewarded. Asking does.

Then comes the quiet one. When your rate drops, many lenders automatically lower your repayment. It feels like a win. It's actually the bank keeping your loan at 30 years.

Let me make it real. Our example rate drops from 6.2% to 5.7%:

• Let the repayment fall to $3,482: you save $69,300, and the loan still runs 30 years.
• Keep paying $3,674.81: you save $164,300, and the loan is gone 3 years and 8 months early.

The difference between those two outcomes is one phone call and about $95,000. You never miss money you've already been living without.

And that's the trap.

All four together: almost 11 years off the loan

Same $600,000 loan. Same income. Pay fortnightly the right way, add $50 a week, keep $20,000 in the offset, and hold your repayment when the rate drops to 5.7%.

On our example, the loan is paid off in about 19 years instead of 30: 10 years and 10 months sooner, with $358,100 less interest. Run your own numbers in our pay off your home faster calculator.

The refinance trap

Refinancing to a lower rate is smart. How you do it is where people get stung.

Say you're five years into the example loan and still owe $559,700. You find a new lender at 5.7%. The new loan is set up over a fresh 30 years, because that's the default, and your repayment drops from $3,675 to $3,248. It feels great.

Except you've just added five years to your mortgage. You're now paying it off in year 35, and you'll pay about $67,000 more interest than if you hadn't refinanced at all. Refinance and keep the $3,675 repayment instead, and the same loan is done in year 27 and 8 months. Our refinance calculator shows the trade-off on your own loan.

The rule: "When you refinance, keep the remaining term, or better, keep the repayment you're already used to."

Before you go hard on the mortgage

Paying the loan off faster isn't always step one. Hold off if any of these are you:

• No emergency buffer. Build three months of expenses first. Keep it in the offset and it works while it waits.
• Credit cards, personal loans or buy now, pay later. At 15 to 20% plus, those usually come first.
• A fixed rate. Extra-repayment caps vary a lot by lender, commonly $5,000 to $10,000 a year, and going over can trigger fees. Check your contract first.
• Plans to invest or rent out your home one day. Structure matters more than speed here. Get advice first.

Mortgage-free is a milestone. It isn't a plan.

Here's something the bank's repayment schedule never shows you. By year ten on the four-step plan, you've paid off $233,000 of principal. On the bank's schedule it's $95,200. That's before your home has gone up a single dollar in value.

That's equity. The real question is what it does next.

In more than 30 years of sitting across the table from Australian families, we've seen the same fork again and again. Picture two households. One puts every spare dollar into the home, becomes mortgage-free, and then starts building retirement income from scratch with whatever working years are left. The other runs the same four steps, but at some point uses part of that equity to buy an income-producing asset, while still attacking the home loan. The home might take a little longer. They cross the line owning something that pays them.

Neither is right for everyone. The second carries more risk: more debt, rates can rise, markets move. But time is the one ingredient you can't buy back later. That's why reducing personal debt is step one of our 5 Financial Freedom Formula, not the last step.

The purpose of wealth was never to keep you in debt for 30 years. It was meant to give you options.

Get the full playbook

Everything here, with the charts, the assumptions and the part most mortgage guides skip, is in The Mortgage Reduction Playbook. It's free. Get your copy here.

Don't know your rate, your structure or your real payoff date? Most people don't. That's what our free 30-minute Mortgage Health Check is for.

How we worked out the numbers: an example loan of $600,000 at 6.2% p.a. variable, principal and interest, over 30 years, with a monthly repayment of $3,674.81. Interest is calculated per repayment period and assumed constant, except in step four, which assumes 5.7% p.a. from the start of the loan (and, in the refinance example, from year five). No fees or charges are included, the $20,000 offset balance is assumed to stay constant, and figures are rounded to the nearest $100 and month. Your lender may calculate interest daily, so your results will differ.

This article is general information only. It doesn't take into account your objectives, financial situation or needs, and it isn't personal financial, credit or tax advice. Consider whether it's right for you and seek personal advice before acting on it. See our Credit Guide.