Extra Repayment Strategies and How They Can Help You

If you're a Tasmanian Government employee with a home loan, you've probably wondered how to pay it off faster and save money on interest. Making extra repayments is one of the most effective strategies to build equity, reduce your loan term, and improve your financial position.

Let's explore how extra repayment strategies work and how they can help you achieve home ownership goals while maintaining financial stability.

Understanding Extra Repayments

Extra repayments are payments you make above your minimum required monthly amount. When you pay more than the standard principal and interest repayment, that additional money goes directly towards reducing your loan amount, which means you'll pay less interest over the life of your loan.

For example, if your monthly repayment is $2,000 but you pay $2,500 instead, that extra $500 goes straight off your principal. Over time, this can shave years off your loan term and save you tens of thousands of dollars in interest.

The key is to check that your home loan features allow extra repayments without penalties. Most variable rate loans offer this flexibility, while some fixed interest rate home loan products may have limits or charge fees for additional payments.

Benefits of Making Extra Repayments

When you consistently make extra repayments, you'll enjoy several advantages:

• Reduced interest costs: Less principal means less interest charged
• Shorter loan term: Pay off your mortgage years earlier
• Build equity faster: Increase your ownership stake in your property
• Improve borrowing capacity: Lower debt levels may help if you need to apply for a home loan for investment purposes later
• Better loan to value ratio (LVR): A lower LVR can help you avoid or reduce Lenders Mortgage Insurance (LMI) when refinancing

For Tasmanian Government employees with stable income, extra repayments are a powerful way to secure your future and maximise the benefits of your owner occupied home loan.

How Much Can You Save?

Let's look at a practical example. If you have a $500,000 home loan with a variable interest rate of 6% per annum over 30 years, your monthly repayments would be approximately $2,997.

If you made an extra $500 per month in repayments, you could:

• Pay off your loan approximately 8 years earlier
• Save around $120,000 in interest charges
• Own your home outright while you're still working

These figures demonstrate why calculating home loan repayments with extra amounts included can reveal significant long-term savings.

Strategies for Making Extra Repayments

There are several approaches you can take to make extra repayments work for your situation:

1. Increase Your Regular Payment

Round up your monthly repayment or add a fixed amount each month. Even an extra $100 per month can make a meaningful difference over time.

2. Make Lump Sum Payments

Use your tax refund, work bonus, or annual leave payout to make one-off extra repayments. These larger amounts can significantly reduce your principal.

3. Switch to Fortnightly Repayments

By paying half your monthly amount every fortnight, you'll make 26 fortnightly payments per year (equivalent to 13 monthly payments instead of 12). This strategy means you make one extra monthly payment each year without really noticing.

4. Use an Offset Account

While not technically an extra repayment, having an offset account or linked offset can have a similar effect. Any money in this account reduces the balance on which interest is calculated, which is particularly useful for home loan packages that include this feature.

Choosing the Right Home Loan Structure

When considering extra repayment strategies, your loan structure matters. Here's how different home loan options work:

Variable Rate Loans

These typically offer the most flexibility for extra repayments. You can usually pay as much as you like without penalties, and you might also access features like a mortgage offset account.

Fixed Rate Loans

Fixed interest rate home loans may limit extra repayments to a certain amount per year (often $10,000-$30,000). Exceeding this limit may result in break fees.

Split Loans

A split loan combines both fixed and variable portions, giving you interest rate certainty on part of your loan while maintaining flexibility on the rest. This can be an ideal compromise if you want to make extra repayments while still having some rate protection.

What to Consider Before Making Extra Repayments

Before you commit to extra repayments, think about:

• Emergency funds: Ensure you maintain adequate savings for unexpected expenses
• Other debts: High-interest credit cards or personal loans might be worth paying off first
• Investment opportunities: Sometimes investing extra funds elsewhere might provide better returns
• Loan features: Confirm your home loan products allow extra repayments and whether you can redraw if needed

For Tasmanian Government employees, your stable employment can work in your favour when structuring your repayment strategy.

Getting the Right Home Loan for Extra Repayments

If your current home loan doesn't support your repayment strategy, it might be time for a loan health check. You could access home loan options from banks and lenders across Australia that offer more suitable home loan features and benefits.

When you compare rates and home loan products, look for:

• No or minimal extra repayment restrictions
• Redraw facilities to access extra payments if needed
• Portable loan features if you plan to move
• Interest rate discounts for public sector employees
• No ongoing fees that reduce your savings

Public Home Loans specialises in finding home loans for public servants with features that support your financial goals. We can help you compare current home loan rates and find products that align with your extra repayment plans.

Taking Action on Your Home Loan Strategy

Making extra repayments is one of the smartest moves you can make to achieve financial stability and reduce the cost of your home loan. Whether you're managing your first home loan or buying your next home, having a repayment strategy can save you money and give you peace of mind.

The key is to start now, even if it's just a small amount. Every extra dollar you pay off your principal is a dollar that won't accumulate interest over the next 20 or 30 years.

If you're unsure whether your current loan structure supports extra repayments, or if you want to explore home loan packages that could save you more, it's worth getting professional advice. Understanding your options - from variable home loan rates to split rate structures - can help you make informed decisions about your mortgage.

Call one of our team or book an appointment at a time that works for you to discuss how extra repayment strategies can accelerate your path to owning your home outright. Contact us today to explore your options and start saving on your home loan interest rate.