Tips to Pay Off Your Mortgage Faster Despite Higher Rates
With rising interest rates putting pressure on household budgets across Australia, paying off your mortgage might feel more daunting than ever. But higher rates don’t mean you have to abandon the goal of becoming mortgage-free sooner. By adopting smart strategies, you can reduce the total interest you pay and shave years off your loan term, even in a high-rate environment.
This guide will walk you through practical, proven methods to pay off your mortgage faster, helping Australian borrowers navigate today’s challenging market with confidence.
Why Paying Off Your Mortgage Faster Matters
The longer you take to repay your loan, the more you’ll pay in interest over its life. Even small changes to your repayment habits can result in substantial long-term savings, especially when interest rates are elevated.
Example:
- $500,000 loan at 6.0% over 30 years = ~$579,000 total interest
- Paying it off over 25 years = ~$496,000 total interest
- Total savings: ~$83,000
With some thoughtful planning, you can make meaningful progress toward early repayment and financial freedom.
1. Make Fortnightly or Weekly Repayments
Switching from monthly to fortnightly or weekly repayments is one of the simplest ways to pay off your mortgage faster. By paying half your monthly repayment every two weeks (or a quarter every week), you effectively make one extra monthly repayment each year.
Example:
- Monthly repayment: $2,500
- Fortnightly repayment: $1,250
- Annual total (monthly): $30,000
- Annual total (fortnightly): $32,500
That extra repayment directly reduces your loan balance, saving you thousands in interest over time.
2. Make Extra Repayments
Adding even small amounts as extra repayments goes straight to reducing the principal, which lowers future interest costs. Many Australian home loans allow unlimited extra repayments on variable-rate loans, though fixed-rate loans may have caps.
Example:
- $400,000 loan at 6.0% over 30 years
- Extra monthly repayment: $200
- Total interest saved: ~$70,000
- Time saved: ~3 years
Tips:
- Use lump sums like tax refunds, bonuses, or gifts to boost extra repayments.
- Round up your regular repayments (for example, from $2,850 to $3,000).
3. Use an Offset Account
An offset account is a savings or transaction account linked to your mortgage. The balance in the offset account reduces the principal amount used to calculate your interest.
Example:
- Loan: $500,000 at 6.0%
- Offset account balance: $20,000
- Interest charged on: $480,000
Even modest, consistent deposits into an offset account can lower your interest costs and accelerate debt reduction.
4. Refinance to a Lower Rate
Refinancing to a lower interest rate can reduce your monthly repayments and overall interest costs. Even in a rising rate environment, some lenders may offer better deals or discounts if you negotiate.
Steps:
- Compare rates across lenders using comparison tools.
- Factor in refinancing costs (such as discharge fees, application fees, and legal costs).
- Aim to maintain or increase your repayments after refinancing to speed up principal reduction.
Example:
- Current rate: 6.5%
- New rate: 5.5%
- $400,000 loan over 30 years
- Monthly saving: ~$250
- Total saving (if reinvested in the loan): ~$55,000 and ~3 years off the term
5. Make Lump-Sum Payments
When you receive a windfall — such as a tax refund, bonus, or inheritance — consider applying it as a lump sum to your mortgage.
Example:
- $400,000 loan at 6.0%
- Lump-sum payment: $20,000 in year 5
- Total interest saved: ~$50,000
- Time saved: ~3 years
Lump-sum payments have a compounding effect, reducing future interest and shortening your loan term.
6. Reduce Your Loan Term
If you’re applying for or refinancing a loan, consider choosing a shorter term. While it increases your monthly repayments, it dramatically reduces total interest.
Example:
- $500,000 loan at 6.0%
- 30-year term: ~$579,000 interest
- 25-year term: ~$496,000 interest
- Savings: ~$83,000
Opt for the shortest term you can afford comfortably to minimise overall costs.
7. Avoid Interest-Only Loans
Interest-only loans may offer lower initial repayments, but they delay principal repayment, increasing your total borrowing cost.
Example:
- 5-year interest-only period on $500,000 at 6.0%
- Total interest after 5 years: ~$150,000 (with no reduction in principal)
Switching to principal-and-interest repayments early helps you build equity faster and pay less over time.
8. Align Repayments With Your Income Cycle
If you’re paid fortnightly or weekly, align your repayments with your income cycle. This improves budgeting, reduces the risk of missed payments, and helps you make extra repayments more consistently.
9. Avoid Loan Features You Don’t Need
Many loans include features like redraw facilities, offset accounts, or package deals that carry additional fees. If you don’t need these, consider switching to a simpler product with a lower rate and fewer costs.
Example:
- Loan with features: 6.0% + $500 annual fee
- Basic loan: 5.7% + no fees
- Annual saving: ~$1,000 or more
10. Stay Consistent With Repayments
When rates drop, lenders often reduce minimum repayment amounts. To pay off your loan faster, maintain your original (higher) repayments.
Example:
- Current repayment: $3,000 at 6.0%
- Minimum repayment after a rate cut to 5.5%: $2,800
- Maintaining $3,000 repayments could save ~$35,000 in interest
11. Budget for Extra Repayments
Create a budget that prioritises mortgage reduction:
- Cut discretionary spending (such as dining out or subscriptions).
- Review and switch utility or insurance providers for savings.
- Allocate annual pay raises, bonuses, or windfalls toward your mortgage.
12. Consider a Split Loan
A split loan divides your mortgage into fixed and variable portions, helping you manage rising rates while still allowing extra repayments on the variable side.
Example:
- Fixed: $300,000 at 6.5%
- Variable: $200,000 at 6.0%
This approach gives you rate stability plus repayment flexibility.
13. Leverage Tax Refunds (For Investors)
If you’re a property investor, you may be eligible for tax deductions on the interest portion of your loan. Redirecting your tax refund into extra repayments can help reduce the principal faster and increase long-term savings.
14. Avoid Redraw Temptation
While redraw facilities provide flexibility, dipping into extra repayments delays mortgage payoff. Treat these extra repayments as untouchable to stay on track toward your goals.
The Long-Term Benefits of Paying Off Your Mortgage Faster
By implementing these strategies, you can:
- Save tens or even hundreds of thousands of dollars in interest
- Achieve financial freedom years earlier
- Build equity faster, opening opportunities for refinancing or investment
- Reduce the stress of long-term debt, particularly during periods of rate volatility
Final Thoughts
Paying off your mortgage faster, even during periods of rising rates, is achievable with the right approach. By increasing repayment frequency, making extra contributions, using offset accounts, refinancing smartly, and staying disciplined, you can reduce the overall cost of your loan and move closer to a mortgage-free future.
Before making changes, review your loan terms, speak with your lender or mortgage broker, and ensure your strategy aligns with your broader financial goals. With consistency and planning, you can take control of your mortgage and unlock significant long-term savings.
