Take a $600,000 loan at 6 percent over 30 years. The standard repayment works out to about $3,597 a month. Now add just $400 a month on top, paying $3,997 instead. Because every extra dollar comes straight off the principal, less interest is charged in every future month, and that effect snowballs. The loan is paid off in about 23 years and 3 months instead of 30 years, cutting roughly 6 years and 9 months off the term. Over the life of the loan the extra repayments save about $182,347 in interest. The saving is so large relative to the modest $400 a month because the home loan runs for decades, so even a small extra amount compounds powerfully.
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How it is calculated
The calculator first finds your standard monthly repayment using the amortising formula on the balance, rate, and remaining term. It then runs two month-by-month payoff simulations on the same loan. The first uses the standard repayment, the second adds your extra amount to every payment. Each month it charges interest at the annual rate divided by 12, then subtracts the repayment, until the balance reaches zero, tracking both the months taken and the total interest charged. The difference in months is the time you save, and the difference in total interest is the money you save. Because the extra payment reduces the principal sooner, it cuts the interest charged on every remaining month, which is why a small regular top-up can shorten the loan by years.
Frequently asked questions
Extra repayments or an offset account?
Both reduce interest. Extra repayments directly cut the balance but the money is harder to access (unless you have redraw). An offset account keeps your cash available while still reducing the interest charged, which suits an emergency fund. Many Australians use an offset for flexibility.
Are extra mortgage repayments tax deductible in Australia?
No. For owner-occupied homes, principal repayments and interest are not tax deductible. The tax deduction rules only apply to investment properties, where the interest on borrowings used to produce income can be claimed as a deduction under ATO rules. Making extra repayments on your own home saves you interest costs but provides no direct tax benefit.
Can I redraw extra repayments later if I need the money?
Many Australian home loans include a redraw facility that lets you access extra repayments you have made ahead of schedule. However, not all loans offer redraw, and some lenders charge a fee or impose minimum redraw amounts. Check your loan contract or contact your lender before relying on redraw as an emergency reserve.
How does making fortnightly payments compare to monthly extra repayments?
Switching from monthly to fortnightly repayments results in 26 half-payments per year, which is equivalent to 13 monthly payments rather than 12. This effectively adds one extra monthly repayment each year without requiring a separate top-up. The interest saving is similar to a modest fixed extra payment, because each fortnightly payment reduces the balance two weeks earlier, lowering the interest charged for those two weeks.