Repayment Examples and Checklists
Extra home loan repayments: worked examples of $300, $500 and a $20,000 lump sum
How much interest and time extra repayments save on an Australian home loan, why keeping your repayment after a rate cut works, and when extra repayments are not the best use of cash.
Every extra dollar you repay on a variable home loan saves interest at your loan rate for the rest of the loan, so it acts like a tax-free, risk-free return equal to that rate. On an illustrative $600,000 loan at 6.00% over 30 years, paying $300 a month extra cuts the term by about five years and saves about $147,000 of interest; $500 a month saves about $213,000. A $20,000 lump sum after five years saves about $64,000 and almost two years. The catch is access: money paid into the loan is only available again through redraw, which the lender can restrict, so build a cash buffer first.
This guide is part of how to calculate home loan repayments. All figures are illustrative and assume the rate stays at 6.00%.
Regular extra repayments
Base loan: $600,000, 6.00%, minimum repayment $3,597.30 a month, total interest about $695,029.
| Extra each month | New repayment | Time to repay | Total interest | Interest saved |
|---|---|---|---|---|
| $0 | $3,597.30 | 30 years | $695,029 | - |
| $300 | $3,897.30 | 24 years 7 months | $547,614 | about $147,400 |
| $500 | $4,097.30 | 22 years 1 month | $482,316 | about $212,700 |
The first $300 does the most work per dollar: $300 a month is about 8% more repayment but cuts the interest bill by about 21%. That is because extra principal repaid early avoids interest for the longest time.
A one-off lump sum
Suppose you receive $20,000 at the end of year five (a bonus, an inheritance, a tax refund) and pay it straight into the loan:
- Balance before: about $558,326
- Balance after: about $538,326
- Repayment unchanged at $3,597.30
- Loan finishes after about 337 months instead of 360, almost two years earlier
- Total interest about $630,644, a saving of about $64,400
Put the same $20,000 in an offset account instead and keep it there, and the interest saving is the same while the money stays accessible. See offset account vs redraw.
Keep your repayment when rates fall
When a variable rate falls, many lenders reduce your minimum repayment automatically, while others keep it unless you ask. Keeping the old repayment is one of the easiest extra repayments to make, because your budget already absorbs it.
Illustrative example: a $600,000 loan started at 6.25% with a repayment of $3,694.30. After two years the balance is about $585,486 and the rate falls to 6.00%.
| Choice | Repayment | Time left | Interest from here |
|---|---|---|---|
| Accept the new minimum | $3,601.47 | 28 years | about $624,606 |
| Keep paying $3,694.30 | $3,694.30 | about 26 years 4 months | about $579,074 |
Keeping the repayment, about $93 a month above the new minimum, saves about $45,500 and finishes about 20 months sooner. Ask your lender to keep the repayment, or set up a separate extra payment.
Check your loan allows it
| Loan type | Extra repayments | Watch for |
|---|---|---|
| Variable | Usually unlimited, no fee | Redraw may be limited later |
| Fixed | Often capped per year (varies by lender) | Paying above the cap can trigger break costs |
| Split | Unlimited on the variable part | Direct extra payments to the variable account |
| Interest only | Usually allowed on variable IO | Ask whether the IO repayment is recalculated |
When extra repayments are not the best use of cash
Paying down the home loan beats a taxed savings account for most borrowers. It is not always the top priority:
- High-interest debt first. A credit card at 20% or a car loan at 9% costs more than a 6% home loan.
- Emergency buffer. Keep three to six months of essential spending in an offset or savings account. Redraw is not a guaranteed emergency fund.
- Investment loans. Prepaying a tax-deductible investment loan before your non-deductible home loan is usually the wrong order. Speak to a registered tax agent.
- Super contributions. Concessional super contributions can be tax-effective, but the money is locked away until preservation age. Compare carefully and check the contribution caps with the ATO.
- Fixed loans near their cap. Park the money in savings or an offset until the fixed term ends.
The after-tax return of an extra repayment
Because interest you avoid is not taxed, an extra repayment on a 6.00% home loan is equivalent to a pre-tax return of:
| Marginal rate incl. Medicare levy | Equivalent pre-tax return |
|---|---|
| 17% (15% bracket for 2026-27 + 2%) | about 7.23% |
| 32% (30% bracket + 2%) | about 8.82% |
| 39% (37% bracket + 2%) | about 9.84% |
| 47% (45% bracket + 2%) | about 11.32% |
A term deposit or savings account would need to beat these rates after fees to be the better choice, with no risk. Shares or property may return more over long periods, but with risk and their own tax treatment. Tax brackets are set by the federal government and can change; check the ATO's current rates.
Frequently asked questions
Do extra repayments reduce my minimum repayment?
Usually not. Most lenders keep the minimum repayment the same and shorten the term. Some will recalculate a lower minimum on request.
Is it better to pay extra or to hold the money in an offset?
The interest saving is the same at the same rate. The offset keeps the money accessible and is better if the property might become an investment later. Extra repayments are better if you would otherwise spend the offset money.
Can a lender charge me for paying the loan off early?
For variable loans taken out from 1 July 2011, exit fees are banned. Fixed loans can carry break costs. A discharge fee may apply when you close the loan.
How do I see the effect on my own loan?
Use the repayment calculator to find your repayment, then add the extra amount and test it against the rate rise stress test.
Sources
- ASIC Moneysmart — paying off your mortgage faster
- Australian Taxation Office — super contribution caps and investment loan interest
- Reserve Bank of Australia — cash rate decisions
