How to pay off your mortgage faster, and what actually moves the needle

The short answer

Pay more than the minimum, pay it as early and as often as your loan allows, and make sure the rate you are paying is one you could still get today. Done together those three do almost all of the work.

The reason they compound is that many lenders calculate home loan interest daily on the balance owing. A dollar that reduces the balance today stops being charged interest from today, and it keeps not being charged for the rest of the loan.

That is the whole mechanism. The rest of this page is about which version of each lever suits which loan, and where the common advice is either wrong or worth checking before you act on it.

The levers that actually shorten a loan

None of these are dramatic on their own, which is why they get dressed up. Their value is that they run in the background for years without needing you to think about them again.

• Set the direct debit above the required repayment, so paying extra happens by standing arrangement rather than by good intention
• Round the repayment up to a round figure, which is the same lever at a size nobody notices leaving the account
• Put irregular money in as a lump sum — a tax refund, a bonus, a payout — rather than letting it sit in an everyday account earning nothing against the loan
• Keep the repayment where it is when your rate falls, because many lenders reduce the required amount automatically and the difference disappears quietly
• Hold your spare cash where it works against the balance, either in an offset account or as extra repayments you could redraw
• Ask your existing lender for a rate review, and ask periodically rather than once, because the rate you signed up to is not the rate the lender writes today

The rate review is the one people skip and it costs nothing. If your lender comes back with something, ask for it in writing so it could be measured against what else is available.

Where to hold spare cash — offset or redraw — is its own decision with real differences in access and lender discretion behind it. That comparison is set out at /guides/offset-vs-redraw/ rather than repeated here.

Fortnightly repayments, and the detail that decides whether they help

This is the most repeated tip on the topic and the most commonly misunderstood. The idea is that you halve your monthly repayment and pay that half every fortnight instead.

There are twenty-six fortnights in a year against twelve monthly repayments, so a household paying half the monthly amount every fortnight puts in the equivalent of one extra monthly repayment across the year. It arrives without feeling like a sacrifice, which is why the tip is a good one.

The catch is in how the lender sets the repayment up. Many lenders work out a fortnightly repayment by dividing the annual amount by twenty-six, which lands exactly the same total across the year and creates no extra repayment at all.

Both arrangements are called fortnightly repayments and only one of them shortens the loan. Switching frequency without checking which you have been given is how people spend years believing they are ahead when nothing has changed.

Weekly repayments work on the same principle and the same caveat applies to them. Paying more often also means the balance falls slightly earlier within each month, which matters where interest is calculated daily.

Refinancing to a lower rate, and the term reset that undoes it

A lower rate is the one lever that reduces what the loan costs without asking anything more of your budget. That is why refinancing is the first thing suggested on this topic, and as far as it goes the suggestion is fair.

What rarely gets said is that a refinance is a new loan, and a new loan commonly comes with a new full term. A borrower several years into a loan who refinances back out to a fresh term sees the repayment fall, feels ahead, and has just spread a smaller balance over more years than it had left.

That can cost more in total interest than staying put, even at a lower rate. It is the single most common way a switch made to pay a mortgage off faster achieves the opposite, and the lower rate on the front of the offer is what hides it.

1. 1

   Work out what is actually left to run

   Not the original term, the remaining one. Every comparison you make from here is against that number, and it is the figure a refinance offer is least likely to mention.

2. 2

   Ask for the new loan to be written over the remaining term

   Many lenders could write a loan over a term shorter than their maximum, but it generally has to be asked for rather than offered. A shorter term raises the required repayment, so it is subject to the lender being satisfied you could service it.

3. 3

   If the term does reset, put the repayment back yourself

   Set the repayment at what you were paying before rather than at the new minimum. The lower rate then goes into the balance instead of into your monthly budget, which was the point of switching.

4. 4

   Cost the switch before you commit to it

   Discharge and government fees on the way out, application, valuation or settlement fees on the way in, a break cost if you are leaving a fixed rate, and lenders mortgage insurance again if your equity sits below the new lender's threshold. That premium generally does not transfer between loans.

5. 5

   Look hard at anything being rolled in

   Consolidating shorter debts into the mortgage lowers what you pay each month and could raise the total considerably, because a short debt has been given decades to run. The arithmetic behind that is at /guides/your-guide-to-debt-consolidation/.

6. 6

   Check what the new loan lets you do

   Whether extra repayments are allowed and capped, whether an offset is attached, and what the redraw terms say. A cheaper loan that blocks the lever you were relying on is not the cheaper loan.

There is a trade in that choice worth naming. Paying extra of your own accord on a longer term keeps the required repayment low, so you could fall back to it if your income drops or a large cost lands. Contracting a shorter term locks the higher repayment in as the minimum you owe.

The rate is one term of a loan and the length is another. A comparison that moves the first and ignores the second is not a comparison, and it is the reason /finance-calculators/loan-term-calculator/ sits on this site.

How a switch is run, what lenders check and when staying put is the better answer are covered at /guides/refinancing-guide/. If refinancing would not leave you better off, we would rather say so than write it.

When paying it down faster is not the right call

There is a version of this advice that does damage, and it is the household sending every spare dollar at the mortgage with nothing held back. Paying a loan down is not the same thing as being in a good position.

• Money you could need at short notice is money you want to be able to reach, and a loan is not always the easiest place to reach it from
• Debts charged at a higher rate — a card, a personal loan, a buy now pay later balance — generally cost more per dollar than a mortgage does
• A fixed portion commonly limits extra repayments, so the money may be better directed at the variable portion of a split
• On an interest only loan nothing you pay reduces the balance unless it is applied as an extra repayment, and the balance is still there when the interest only period ends
• If the property is an investment, which loan to pay down first is a tax question and belongs with your accountant rather than with us
• A repayment you could keep making through a rate rise gets paid down early far more reliably than one set at the limit of what you could borrow

The interest only point is worth sitting with, because the reversion is where it bites. When an interest only period ends the loan generally converts to principal and interest over whatever term is left, and the repayment is worked out on a balance that has not moved.

None of that makes interest only a poor product. It has proper uses for investors and during construction, and the point is only that it does not pay a loan down and was never meant to.

Run the numbers on your own loan

This is the part an article genuinely cannot do for you. Each calculator below takes your balance, your rate and your remaining term, and shows what one of the levers above could be worth on that loan rather than on a hypothetical one.

Every one of them produces an estimate for comparison. Your own lender's figures are the ones that apply, and any change to your loan is subject to that lender's approval and its terms.

The guides below cover the decisions the calculators assume you have already made.

• Find out what term is actually left on your loan, not what it started at
• Ask your lender how your repayment frequency is calculated, and get the answer in writing
• Ask for a rate review, then ask again in a year
• Check whether your loan caps extra repayments, and by how much
• Decide where your emergency money lives before you send it at the loan
• Put your own figures through the calculators above before you change anything