Homeowner is getting a pay rise and considering putting an extra $400 per month on the mortgage. Before deciding, they want to know exactly how many years this shaves off and the total interest saved -- to convince their partner it is worth the sacrifice.
Extra Mortgage Repayment
Mortgage
Even $200/mo saves years
Extra repayments reduce your principal faster, which reduces the interest calculated on that principal every month. The effect compounds — early extra payments are worth far more than later ones.
Interest saved = Total interest (original) − Total interest (with extras)
On a $450K loan at 6.5%, paying an extra $500/month saves approximately $130,000 in interest and pays off the loan 8 years early.
⚠️ Estimate only. Check your loan terms for early repayment conditions. ASIC MoneySmart
Results are estimates for planning purposes. Verify with current standards and a qualified professional.
1 What this calculator does
Calculates the interest saved and years cut from a mortgage by making extra repayments above the minimum monthly payment. Iterates the amortisation schedule with the additional payment to find the exact new payoff date.
2 Formula & professional reasoning
Standard monthly payment = P x [r(1+r)^n] / [(1+r)^n - 1]
With extra payment: New monthly = Standard + Extra
Iterate: Balance(t+1) = Balance(t) + Balance(t) x r - New payment
Continue until Balance <= 0
Interest saved = Standard total interest - New total interest paid
Every extra dollar paid reduces the outstanding principal immediately, which reduces the interest charged in all subsequent months. The effect compounds -- early extra payments save dramatically more interest than the same dollar amount paid later. The iteration approach gives the exact payoff month rather than an approximation, accounting for the irregular final payment when the balance first goes below zero.
3 Worked examples
⚠️ Illustrative example only — not clinical or professional instruction.
Basic
$400/month extra on a $450,000 mortgage
Given: Loan balance: $450,000 | Rate: 6.5% | Remaining term: 28 years | Extra: $400/mo
Working:
Standard payment at 6.5% over 28 yrs: $2,993/mo | Total standard interest: $554,408 | With extra $400/mo, iterate amortisation until zero | New payoff: approximately month 261Answer: Paid off in 261 months (21.75 years) -- saves 6.25 years | Interest saved: approximately $108,000
💡 $400/month extra saves $108,000 and cuts 6 years from the loan. Total extra paid: $400 x 261 = $104,400. Net benefit: save $3,600 more than paid in extras.
Standard
Lump sum extra payment comparison
Given: Same loan | Option A: $400/mo extra | Option B: $20,000 lump sum once
Working:
Lump sum reduces principal to $430,000 immediately, reducing all future interest | Monthly payment on $430K at same rate and term: $2,859/mo | Standard interest on $430K: $529,460 | Saving vs $450K: $24,948 from lump sum aloneAnswer: Lump sum $20K saves ~$25,000 total interest | $400/month ongoing saves ~$108,000 | Monthly extra is vastly more impactful over time
💡 A one-time lump sum saves far less than sustained monthly extras because it is a single reduction while the monthly extras compound their effect every single month.
Advanced
Should I put extra into the mortgage or invest it?
Given: Loan rate: 6.5% | After-tax return on shares: 6.5% net | Extra available: $400/month
Working:
Mortgage paydown: guaranteed 6.5% after-tax return (avoiding 6.5% interest) | Shares at 6.5% net: same expected return but with higher volatility | Both over 25 years on $400/moAnswer: Equal expected return at these assumptions | Mortgage wins when risk-adjusted | Investment wins when net return > mortgage rate
💡 The mortgage paydown is a guaranteed risk-free return equal to the interest rate. Compare to the after-tax, after-fee net return of the investment alternative -- not the gross return. At today's rates, paying off a 6.5% mortgage is a very strong guaranteed return.
4 Sanity check
Front-loading extra repayments is more powerful
Extra $400 in year 1 saves more than $400 in year 20 because it reduces principal for longer
Start extra repayments as early as possible in the loan term.
Check for early repayment fees
Fixed-rate loans may have break costs | Variable-rate loans in AU rarely have early repayment fees
Offset account vs direct extra repayment
An offset account achieves the same interest reduction while keeping the funds accessible
For emergency fund money, an offset account is preferable to direct extra repayments -- same interest saving with more flexibility.
Comparison to investment returns
Extra mortgage repayment = guaranteed return equal to the mortgage rate | Compare to after-tax, after-fee investment return before choosing
5 Common errors
| Error | Cause | Consequence | Fix |
|---|---|---|---|
| Comparing mortgage rate to pre-tax investment return | Not adjusting the investment return for tax | Investment appears more attractive than it actually is after tax | Compare mortgage rate (which is an after-tax benefit -- you save after-tax dollars on after-tax interest) to the after-tax investment return. At 32.5% marginal rate, 9% shares return = 6.1% after tax -- lower than a 6.5% mortgage rate. |
| Making extra repayments on a fixed-rate loan without checking break costs | Assuming all loans allow extra repayments freely | Break cost penalty eliminates the interest saving or creates a loss | Check the loan terms before making extra repayments. Fixed-rate loans in Australia often have caps on extra repayments (e.g. $10,000 per year) and charge break fees if exceeded. |
| Using a redraw facility as if it is the same as an offset account | Treating redraw and offset as equivalent | Accessing a redraw may convert the loan from principal-and-interest to interest-only for tax purposes | An offset account holds the funds separately from the loan. A redraw facility stores the extra payments within the loan. For investment properties, consult a tax adviser before using redraw, as re-borrowing via redraw for non-investment purposes can affect deductibility. |
| Stopping extra repayments during a financial stress period and not restarting | Treating the extra payment as optional long-term | Benefit lost when repayments return to minimum -- interest accrues on the higher balance | Set the extra repayment as an automatic scheduled transfer. Review it annually rather than cancelling on first financial pressure. Even $100/month sustained is far more effective than $400/month for a year then nothing. |
6 Reference & regulatory links
7 Professional workflow
Common tools used alongside this one:
Home Loan Repayment Calculator
Home Loan Repayment Calculator establishes the standard repayment baseline that this extra repayment is added to
→
Loan Comparison Calculator
Loan Comparison Calculator compares the true cost of different loan options before choosing which loan to make extra repayments on
→
Compound Interest Calculator
Compound Interest Calculator models the alternative scenario of investing the extra $400/month instead of paying down the mortgage
→