Home buying is costly. Typical Australian mortgages last 20 to 30 years^, but you can save money by shaving years off your home loan. Follow our general tips to avoid mistakes and pay your home loan faster, and always check with your broker and/or financial advisor.

Key Points

  • The faster you pay off your mortgage, the less interest you’ll pay overall**.

  • Even one additional repayment a year can make a big difference to your loan term, and the money you’ll save.

  • Some fixed interest loan products have early or extra repayment penalties.

  • Using home loan calculators can help you plan a variety of scenarios.

How long, on average, does it take to pay off a mortgage?

Most Australian mortgages last between 25 to 30 years^. The loan term depends on many varying factors, including your deposit size, the cost of your property, your bank, and your loan contract**.

Second-time owner-occupier buyers might have shorter loans as they can use their home's equity as a deposit on another property. On the other hand, if you're a first-time home buyer, you might take longer to pay off your home.

Use a mortgage calculator to determine your loan term and create a financial plan to budget your monthly payments.

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Should you pay off your mortgage early?

It's a good idea to pay your mortgage early. Managing a home loan repayment, HECS or HELP debt, and other debts all at the same time, is challenging. 

The sooner you become financially independent, the sooner you can begin saving money for your future.

Often, your current loan determines how quickly you can repay it**.

Can I pay off my mortgage early without penalty? 

Despite what you may have heard, paying off your mortgage early doesn’t affect your credit score. 

In most cases, you can pay out your home loan without incurring any prepayment penalties. Generally speaking, paying off your loan before the loan term ends means saving money*. 

However, most lenders do charge additional fees if you repay or refinance your mortgage early. 

If you have some or all of your mortgage on a fixed rate, you’ll pay a break fee for early repayment of your loan - however, many banks now allow you to pay in additional money without incurring any extra fees.

Speak to a Compare Club broker about your loan to find out more.

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How can you pay off your mortgage earlier? 

Here are our top tops for doing so, along with some links to calculators to help you formulate a plan.

1. Refinance your mortgage

If interest rates decline, you may be able to reduce the amount you pay by refinancing your mortgage. Additionally, you may also elect to reduce your loan term significantly^. It’s also a good idea to shop around for a better loan when your bank lifts your interest rate.

2. Change your loan type

Another way to negotiate a lower interest rate is to change from a variable home loan to a fixed rate home loan. 

Variable rate home loans fluctuate with the RBA's cash rate. Fixed rate home loans tend to last for up to 10 years only, so refinancing to this set amount can enable you to accumulate additional repayments as a financial buffer. 

Note that changing loan types may incur additional fees, and early prepayments can affect the costs of a fixed rate home loan - so check what changing will cost you, and measure this against what you’re going to be saving. Speaking to an expert broker can help you with these calculations.

3. Reducing your loan term

One of the simplest ways to pay back loan amounts quickly is to reduce your mortgage loan term. There are pros and cons to this method. While it means fewer interest payments overall, it costs more in the short term because your monthly repayments will be higher. Making fortnightly loan repayments (instead of monthly) ensures you’re doing this anyway.

Our mortgage repayment calculators can help you work out if a shorter loan term is affordable for you.

4. Additional loan features

Does your loan offer additional features you’ve not explored, such as an offset account, or a redraw facility? Mortgage offsets link your transaction accounts and savings to your interest repayments*. Find out more information about mortgage offsets and redraw facilities here.

If your home loan doesn’t offer this, consider refinancing to access better loan management tools. Speaking to a home loan expert to learn what your options are:

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5. Make extra mortgage payments

If your lender doesn’t charge a penalty for paying off your mortgage early, consider the following early loan repayment strategies:

  • Make one extra mortgage payment each year: this could reduce the term of your loan significantly.

  • Pay 1/12 extra each month; e.g. if you pay $975 each month on a $900 mortgage payment, you’ll have paid the equivalent of an extra loan repayment by the end of the year.

  • Round up your mortgage payments: when budgeting for your mortgage payment, round up to the next highest $100 amount. Pay $800 instead of $743, or $900 instead of $860^.

  • The dollar-a-month plan: increase your payment by $1 each month to pay $900 the first month, $901 the second month, and so on. For a 30-year, $900-per-month mortgage with a 6% fixed interest rate on a loan of $150,000, you can reduce the term of your mortgage by eight years^.

  • Pay any unexpected income straight into your mortgage, including holiday bonuses, tax returns and credit card rewards^.

Remember to inform your lender that any extra payments must be applied to your loan principal, not the interest. If your lender applies your extra repayments toward future interest payments, this won’t save you any money or time off your loan.

Benefits of paying your mortgage off early:

Many people struggle when deciding whether to pay off their mortgage or build up savings, but in the long run the benefits of getting free from that mortgage really wins through. 

For one, having one debt paid off means being able to handle any short-term debts such as credit cards more easily. For another, you’ll have more funds to apply to other life goals, like travel and planning your luxurious retirement.

Your financial stability is bolstered by cutting out these future payments and also by your ability to better endure turbulent housing market conditions.

What’s a good age to have your house paid off? 

If you buy a house in your early to mid-twenties, you should aim to pay it off by your sixties. You can save more to your superannuation with your mortgage out of the way. 

However, everyone's personal financial circumstances vary and you should focus on repaying your debt at your own pace. 

The average age for having your mortgage paid off in 2023, is anywhere from 50-64 years, with most managing it by 62*, so don’t worry about racing others to any kind of finish line. This is your financial journey, not theirs.

Conclusion:

While most Australian mortgages last 20 to 30 years, you can repay your home loan off more quickly with some disciplined strategies. If you're unsure how to refinance for a home loan better deal, speak to a Compare Club broker today.

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Sources:

^wemoney *Mortgage House **Businessinsider