Should you make extra repayments on your mortgage?

When it comes to home loans, lenders will calculate interest on the total amount owing on the loan. Unless you have an interest only loan, you will be paying back the total amount borrowed, plus the interest associated with that amount.

Once you’ve settled into your home and have begun to get accustomed to the regular repayments, it’s common to find a little more financial flexibility. If you’re at this stage and beginning to wonder if you should be making extra loan repayments, we’re here to weigh up the choices for you!

Firstly, check if your loan allows you to make extra repayments and if there are any associated fees with doing so. Often, fixed-rate home loans will not allow you to make extra repayments. Additionally, your loan may have restrictions on how much extra can be paid at any one time over the life of the loan.

The Pros

Because your interest is calculated on the total amount owed, it stands to reason the higher your loan balance, the more interest you pay. On a typical 25-year mortgage, anything extra you can pay into your home loan within the first eight years will reduce the amount of interest you pay and shorten the overall life of your loan.

Saving on interest and cutting the length of your loan can ultimately provide significant savings and get you towards being mortgage free that bit sooner. You’ll also have more flexibility and more cash flow once you’ve paid off the property.

Any downsides?

Paying extra on your mortgage is never a bad thing, though something to consider is perhaps missing out on investing or purchasing more property with the extra funds you have saved (although don’t write off using equity for investment purposes).

A time we would also recommend reconsidering making extra payments on your loan is when you have personal loans or credit debt to pay off, as it usually attracts a higher interest rate. By focusing on reducing any other debt first you can then choose to redirect any flexible funds towards your mortgage.


Want to know how much time and money you could save on your home loan? Find our mortgage calculators here.


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