Question 1

Can I make extra repayments on a fixed rate home loan in Australia?

Accepted Answer

Most fixed rate home loans in Australia restrict extra repayments to around $10,000 per year. Exceeding this limit typically incurs a break fee. Variable rate loans generally allow unlimited extra repayments without penalty, which is why many borrowers prefer variable or split their loan — fixing part and keeping some variable for flexibility.

Question 2

What is the difference between a redraw facility and an offset account?

Accepted Answer

A redraw facility lets you access extra repayments you've made on your loan — the extra payments sit in your loan account reducing your balance, and you can redraw them if needed. An offset account is a separate account whose balance is offset against your loan — it works similarly for interest but your money stays in a separate, more accessible account. Offset accounts may be better for emergency funds; redraw is better if you want to be sure the funds stay "locked away" as principal reduction.

Question 3

How much do extra repayments actually save on a typical Australian home loan?

Accepted Answer

On a $680,000 loan at 6.2% over 30 years, an extra $500/month saves approximately $225,000 in interest and cuts the loan term by about 9 years. Even $200/month saves around $100,000 and cuts about 4 years. The exact savings depend on your loan size, rate, and when you start making extra repayments.

Question 4

Are extra home loan repayments tax deductible for investment properties?

Accepted Answer

For investment properties, the interest on your loan is generally tax deductible — but reducing your loan through extra repayments also reduces your deductible interest. This is why some investors prefer offset accounts over making extra repayments on investment loans, as the money remains accessible while achieving the same interest reduction. Always consult a tax professional for advice specific to your situation.

Question 5

How do I ensure extra repayments are applied to my principal?

Accepted Answer

For most Australian home loans, extra payments above your minimum repayment are automatically applied to your principal. Confirm with your lender, particularly for fixed rate loans where extra repayments may be treated differently. Check your loan statement each month to confirm the application of extra funds.

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