Extra Mortgage Repayments — How Much Do They Save? (2026)
Making extra repayments on your home loan is one of the most reliable ways to reduce the total interest you pay and cut years from your loan term. Because mortgage interest compounds daily on the outstanding balance, every extra dollar you pay reduces the base on which future interest is calculated.
Here are realistic worked examples for Australian mortgages.
How Extra Repayments Work
Your required minimum repayment is calculated to repay the loan exactly at the end of the term. When you pay more than the minimum, the excess goes directly to reducing the principal balance.
A lower principal balance means less interest charged at the next calculation — and the effect compounds over time.
Key point: On most variable rate loans, there is no limit on extra repayments. On fixed rate loans, most lenders cap extra repayments at $10,000 per year — check your loan terms.
Extra Monthly Repayments — $600,000 Loan at 6% (30-Year Term)
Minimum monthly repayment: $3,597
| Extra per month | Total monthly | Interest saved | Time saved |
|---|---|---|---|
| $100 | $3,697 | ~$41,000 | ~1.8 years |
| $200 | $3,797 | ~$78,000 | ~3.5 years |
| $300 | $3,897 | ~$112,000 | ~5 years |
| $500 | $4,097 | ~$150,000 | ~7 years |
| $750 | $4,347 | ~$186,000 | ~9.5 years |
| $1,000 | $4,597 | ~$214,000 | ~11 years |
Estimates assume constant 6% interest rate throughout. Actual results vary with rate changes.
Extra Monthly Repayments — $800,000 Loan at 6% (30-Year Term)
Minimum monthly repayment: $4,796
| Extra per month | Interest saved | Time saved |
|---|---|---|
| $200 | ~$89,000 | ~3 years |
| $500 | ~$174,000 | ~6.5 years |
| $1,000 | ~$244,000 | ~10 years |
| $1,500 | ~$295,000 | ~13 years |
Lump Sum Repayments
Lump sums — from tax refunds, bonuses, inheritance, or asset sales — applied early in the loan have the greatest impact because the interest savings compound over the full remaining term.
Lump sum impact — $600,000 loan at 6%, applied at Year 1
| Lump sum | Interest saved | Time saved |
|---|---|---|
| $5,000 | ~$9,500 | ~5 months |
| $10,000 | ~$18,500 | ~10 months |
| $20,000 | ~$35,000 | ~1.7 years |
| $50,000 | ~$77,000 | ~4 years |
| $100,000 | ~$126,000 | ~7 years |
Lump sum applied at Year 10 vs Year 1 — $10,000:
| Timing | Interest saved |
|---|---|
| Year 1 | ~$18,500 |
| Year 5 | ~$15,000 |
| Year 10 | ~$11,500 |
| Year 15 | ~$7,500 |
The earlier you apply a lump sum, the more it saves.
The Compounding Effect — Why It Works
Consider a $500,000 loan at 6%. In the first month, interest is approximately $2,500 (roughly $500,000 × 6% ÷ 12). If you pay an extra $500 that month, your balance becomes $499,000 instead of $499,500.
The following month, interest is calculated on $499,000 — saving roughly $2.50. That seems small. But this $2.50 saving itself reduces the base for the next month, and so on. Over 30 years, small consistent reductions in principal compound into substantial interest savings.
Extra Repayments vs Offset Account
Both reduce the interest you pay, but they work differently:
| Extra repayments | Offset account | |
|---|---|---|
| Effect on loan | Directly reduces principal (permanent) | Reduces interest-bearing balance only while funds sit in offset |
| Access to funds | Only via redraw (restrictions may apply) | Fully accessible at any time |
| Best for | Committed savers who won’t need the money | People who want interest savings with flexibility |
If you want the flexibility to access funds (emergency, investment opportunity), keep extra money in an offset account rather than paying it directly into the loan.
→ See Offset Account vs Extra Repayments
Extra Repayments on Fixed Rate Loans
Most fixed rate loans in Australia limit extra repayments — typically $10,000 per year above the minimum. Exceeding this limit may trigger break costs.
If you want to make significant extra repayments, a variable rate loan or a split loan (fixed + variable) gives you more flexibility.
→ See What Happens If I Pay Off My Fixed Rate Early?
Frequently Asked Questions
Does paying extra reduce my minimum repayment?
On most Australian loans, extra repayments reduce your outstanding balance but do not automatically reduce your minimum required repayment. You continue to pay the same minimum — but the loan pays off faster. Some lenders do reduce the minimum over time as the balance falls.
Can I get the extra repayments back if I need them?
If your loan has a redraw facility, you can typically access extra repayments you’ve made — subject to your lender’s redraw policy. However, some lenders restrict redraw or charge fees. If liquidity is important, consider an offset account instead.
Do extra repayments help more at the start or end of the loan?
Significantly more at the start. Early in the loan, most of each repayment goes to interest — extra payments reduce the principal base on which that large interest bill is calculated. Late in the loan, most of each repayment is already principal, so extra repayments save less.
Does making extra repayments affect my tax on an investment property loan?
Yes — if you are making extra repayments on an investment property loan, you are reducing deductible interest. This may affect your tax position. Speak with a registered tax agent about your specific situation.
Related Guides
- How to Pay Off Your Mortgage Faster
- Offset Account vs Extra Repayments
- Fortnightly vs Monthly Repayments
- Paying a Lump Sum Off Your Mortgage
- Mortgage Repayment Hub
Worked examples are estimates based on a constant interest rate throughout the loan term. Actual savings will vary with rate changes, timing of payments, and lender-specific calculation methods. For advice tailored to your situation, speak with a licensed mortgage broker or financial adviser. Find one through MoneySmart.