Do I have to make additional repayments on my mortgage?

If you have a home loan, chances are you don’t want to pay it off any longer than necessary. Although many people only pay the minimum amount set by their lender each month, making extra payments can be a great way to reduce the overall cost of your loan.

When you take out a loan, it has two components: principal (which is the amount the bank has agreed to lend you) and interest (which is the cost of borrowing that money).

During the first years of the loan, the majority of your scheduled repayments will be used to pay interest. But anything you pay over that amount will instead be directed to the principal.

Committing to additional payments, especially at the start of your mortgage, can reduce the principal and help reduce the amount of interest it generates. Over time, this can save you tens of thousands of dollars, not to mention years of reduced loan terms.

Similarly, you can also save money by making a lump sum payment. Whether you inherited a sum of money, received a cash gift, or collected a large tax return, allocating it to your mortgage can be a wise decision.

Let’s say you have a $500,000 loan that you intend to repay over 25 years. The interest rate is 3.50% per year and your repayments are set at $2,503 per month. At this rate, you will pay a total of $250,935 in interest over the life of the loan

But if you were to increase your monthly repayments by $150, you could save about $24,194 in interest charges when your mortgage is paid off. You will also be mortgage free two years and two months before the scheduled date.

The table below shows how much you can save on a similar loan by making additional repayments of varying sizes. Use our additional reimbursement calculator to get a personalized estimate.

Projected savings on a $500,000 loan over 25 years

Additional monthly repayment Savings over the term of the loan Time saving
$50 $8,641 9 months
$100 $16,686 1 year 5 months
$150 $24,194 2 years 2 months
$200 $31,219 2 years 9 months
$250 $37,809 3 years 4 months
$300 $44,002 3 years 11 months

While it’s best to start making extra payments early in the mortgage, it won’t always be feasible for everyone. The good news is that you can still achieve significant savings if you start further.

For example, if we used the same numbers as in the last example, but suppose you didn’t start making those extra $150 monthly repayments until ten years into your mortgage, you would still save $7,820 $ in interest and reduce the life of your loan by one year and one month.

Most variable rate loans allow you to make free and unlimited additional repayments. Fixed rate loans, on the other hand, may cap the amount you can repay each year or charge you a fee for the privilege.

Be sure to ask your lender about their rules regarding additional repayments before taking out a loan.

Making regular payments above what your lender requires is a great way to save money and pay off your mortgage early. The sooner you can get rid of your mortgage debt, the more disposable income you will have to spend as you see fit.

At the same time, you should only pay extra on your loan if your finances allow it. If you have other debts, especially ones that attract higher interest rates, it may not be a good idea to overlook them in favor of your mortgage.

For more information, see our guide to home loan features. And if you’re looking for a home loan, visit our home loan comparison page, where you can compare options by rate and type.

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