Every extra dollar you throw at the loan skips straight to principal — and stops earning the bank interest for decades. Here's what your extra amount is really worth.
Why small extras have huge effects
Mortgage interest compounds against you: interest is charged on the balance daily, so every dollar of principal you remove stops costing you interest for the entire remaining term. $300 extra a month on a $550,000 loan at 5.75% saves around $120,000 of interest and clears the loan about five years early. The earlier in the loan you start, the bigger the effect — in year one, almost your entire minimum payment is interest, so extras are the only thing genuinely shrinking the debt.
Extra repayments vs offset: same maths, different flexibility
A dollar in redraw and a dollar in offset save identical interest. The differences are practical: offset money is yours to withdraw without asking; redraw is technically the bank's to freeze (rare, but it happened in 2020), and on investment loans, redrawing for personal use contaminates the loan's tax deductibility. Rule of thumb: owner-occupiers can use either; investors should prefer offset.
Check before you start
- Fixed-rate loans usually cap extra repayments (often $10,000–$30,000/year) and charge break costs above the cap. Variable loans are unlimited.
- Recasting the minimum: some lenders lower your required payment after big extras. Decline it — keep paying the old amount or the benefit evaporates.
- Higher-interest debt first: a credit card at 20% always beats the mortgage at 5.75%. Clear it first.
Should extras go to the mortgage or super? Money into the mortgage "earns" your interest rate tax-free (5.75% here). Salary-sacrificed super often earns more long-term but is locked until preservation age. Many people do both — see our salary sacrifice calculator for the other side of the ledger.
Frequently asked questions
How much difference does $100 a week extra make?
On a $550,000 loan at 5.75% with 27 years left, about $160,000 of interest saved and roughly 7 years cut from the term. Run your own numbers above — the result scales with rate and balance.
Is it better to make extra repayments or put money in an offset account?
The interest saving is identical. Offset keeps the money accessible and preserves tax deductibility on investment loans; extra repayments (redraw) suit people who prefer the money out of easy reach.
Can I make extra repayments on a fixed-rate loan?
Usually only up to an annual cap ($10,000–$30,000 depending on the lender) before break fees apply. Variable-rate loans allow unlimited extras.
Do extra repayments reduce my minimum repayment?
No — the minimum stays the same and the surplus builds as redraw, shortening the loan. If your lender offers to 'recast' a lower minimum, declining preserves the payoff benefit.