When it comes to paying off a home loan, most people assume you need to make large lump-sum repayments or dramatically change your lifestyle to see a difference. The truth is far simpler — small, consistent extra repayments can create significant savings over time.
How It Works
Every home loan repayment is split between interest and principal. In the early years, a larger portion goes to interest. By paying even a small amount extra towards the principal each month, you reduce the balance faster. A lower balance means less interest charged, which speeds up your repayment timeline.
Example:
For a $500,000 loan at 6% over 30 years, paying an additional $100 each month could save you over $30,000 in interest and shorten your loan term by several years. Multiply that effect by increasing the extra amount or starting earlier, and the results are even greater.
The Power of an Offset Account
If you have savings set aside, consider using an offset account. The balance in this account is deducted from your loan amount when calculating interest. For example, if you have $20,000 in an offset account, the bank only charges interest on $480,000 instead of the full $500,000 — without locking your funds away.
Why Small Steps Matter
While $100 a month may seem insignificant, the compounding effect over decades is substantial. It’s a strategy that doesn’t require major sacrifices but can meaningfully improve your financial position, reduce debt stress, and help you reach mortgage freedom sooner.
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