Six ways to pay off your home loan faster

Living a mortgage-free life can feel like a pipe dream, but applying these six strategies could help make it a reality – and much sooner than you think.

3 minute read

When you’re at the starting line of paying off your home loan, it can feel like you’re about to face a 30-year-long marathon. We spoke with BNZ Home Loan Partner, Simon Crang, and discovered six strategies to help you pay off your mortgage faster. 

1. Increase your repayment amounts 

Because of the long life-span of a mortgage, even small increases in loan repayments can make a huge difference. As Simon explains, raising your repayments won’t just reduce the time it takes to repay your loan – it’ll also reduce the total amount of interest you’ll pay, which means more money in your pocket.

Say you’ve purchased a home for $1,000,000 with a $200,000 deposit on a 30-year term at 6.79% p.a. Upping your monthly repayments from $5,211 to $5,511 could shave four years and six months off your loan. Plus, that $300 extra per month could also save you more than $190,000 in interest over the lifetime of your loan*. Don’t forget to check with your mortgage provider if there are any early repayment charges that may apply.

Here are Simon’s top pieces of advice about increasing your loan repayments.

• Review your repayments any time your financial circumstances change - say if you get a pay-rise or bonus, a flatmate, or switch from a single to a double income. Are you able to put this extra money to work on paying down your loan?
• Think about rounding up your repayments. For example, if you’re paying $5,211 a month, could you look to increase this to $5,300?
• Consider repaying your home loan as though it’s on a shorter term (for example if you’re on a 30-year term, calculate your repayments as though it’s only 25 years). That way you can pay your loan off sooner, while still having the flexibility to easily lower your repayments should you need to.

2. Structure your home loan with flexibility in mind 

Rather than fixing your entire home loan for the same period, Simon suggests considering splitting it out across several fixed rate periods - for example one, two and three years. “This creates more opportunities to relook at your budget, and reassess your repayment structure,” he says. You could also consider putting some of it on a variable interest rate, which gives you more flexibility to make changes to your repayments.

3. Switch your repayments from monthly to fortnightly 

There can be benefits to making repayments more frequently. “By paying every two weeks instead of every calendar month, what you’re effectively doing is making two extra fortnightly mortgage repayments per year,” says Simon. “So, take your total monthly repayment amount, divide that by two, and pay that fortnightly instead.” You will need to talk to your bank to arrange this.

For an $800,000 loan on a 30-year term with an interest rate of 6.79% p.a., those two extra fortnightly repayments could slash just over six years off a loan - and save over $250,000 in interest**. And with your repayments spread out across the year, it’s less likely you’ll notice the extra funds leaving your account. 

4. Make lump sum payments 

Have you recently received an inheritance, had a tax refund, or sold an asset or some shares? If you find yourself coming into some extra money, consider putting it towards your home loan. 

As Simon explains, the rules around lump sum payments can differ with each loan type. “Some fixed rate home loans allow lump sum payments of up to 5% of the total loan each year before an early repayment charge may apply, while other fixed rate home loans don’t allow any extra repayments without being charged early repayment costs,” he says. “On the other hand, with a floating loan you can make any number of extra repayments without being charged repayment costs.”  

A lump sum payment goes straight towards the loan itself (principal). This means that lump sums can significantly reduce the amount of time and money you’ll spend paying off your home loan.  

5. Make a portion of your home loan floating 

We’ve already touched on the fact that a floating loan lets you make lump sum payments without incurring early repayment charges. So, if you’re looking to make an extra repayment or two, floating a portion of your home loan could be a good idea.  

Simon also recommends looking into a BNZ TotalMoney home loan. “TotalMoney is an off-setting product that uses the funds sitting in your everyday bank accounts to help you save interest on your home loan,” says Simon. “So, let’s say you put $100,000 of your home loan into a TotalMoney floating home loan. If you have $60,000 in a TotalMoney everyday account, you’ll only be charged interest on the $40,000 difference.” 

Even better, TotalMoney allows you to link multiple accounts and use money in yours, your partner's, a parent's or child's account to offset all, or part of, your home loan, meaning you'll pay less interest.

Your minimum repayments stay the same, but more of your money goes towards paying off the principal. And the more that goes towards your principal, the less time you’ll spend paying off your loan.  

Try out our TotalMoney calculator to figure out how much your savings could save you. 

6. If your interest rate goes down don’t reduce your repayments with it 

It can be tempting to seize the opportunity to lower your loan repayments whenever your interest rate goes down. But those few extra dollars could end up costing you big in the long-run.

“If your interest rate goes down, the best idea is to keep your repayments exactly the same as what you’re currently paying – or more if you can,” says Simon.  

By keeping your loan repayments at the level you’ve already grown used to, you’re ensuring that a higher percentage of those repayments go towards the principal. And the faster your principal is paid off, the sooner you’ll be waving your mortgage goodbye.  

When you’re staring down the barrel of a 20-, 25-, or even 30-year-long mortgage, paying it off can seem a lifetime away. But by choosing the right structure, regularly reviewing your repayments, and putting your savings to good use, you could end up closing the door on your mortgage years earlier than you imagined. 

Related articles

Related products

Related tools

BNZ home loans

Find out more

This article is solely for information purposes. It’s not financial or other professional advice. For help, please contact BNZ or your professional adviser. No party, including BNZ, is liable for direct or indirect loss or damage resulting from the content of this article. Any opinions in this article are not necessarily shared by BNZ or anyone else.

All home loans are subject to BNZ lending criteria (including equity requirements). Standard and TotalMoney T&Cs and fees apply. Rates and fees are subject to change. Offsetting accounts must be TotalMoney accounts. Maximum of 50 accounts in a TotalMoney group.

For the TotalMoney calculator, calculations are indicative only. T&Cs apply. 

 *Based on a loan amount of $800,000 on a 30-year term with an interest rate of 6.79% p.a. and monthly repayments of $5,511. These figures are calculated based on a $300 increase to the monthly repayments, repayments being made on time, and the current interest rate staying the same for the term of the loan (which in reality is likely to change over time). Time saved is rounded down to the nearest month. 

**Based on a loan amount of $800,000 on a 30-year term with an interest rate of 6.79% p.a. and monthly repayments of $5,211. These figures are calculated based on fortnightly repayments of $2605.50, repayments being made on time, and the current interest rate staying the same for the term of the loan (which in reality is likely to change over time).