What an Extra $200 a Month Does to Your Mortgage
Of every strategy on this site, regular extra repayments are the simplest: pick a number, set a standing order, forget it exists. No lender negotiation, no account restructuring, no timing decisions.
The reason it works so well is the shape of a mortgage. In the early years, most of each repayment is interest — on a typical new loan, well over half. Every extra dollar goes 100% to principal, which means early extra repayments hit several times harder than the sticker amount suggests.
How it works
Your minimum repayment is calculated so the loan dies in exactly 30 years. Anything above the minimum attacks principal directly, and the interest that principal would have generated — every month, for decades — never gets charged.
The effect is steeply front-loaded. $200 extra in year one saves several times more than $200 extra in year twenty-five, because it has more years of compounding to cancel. This is also why starting now beats starting after the next pay rise.
Aisha set her repayment to $200 above the minimum and forgot about it. No budget meetings. No spreadsheets. Just a standing order that quietly deleted years from the end of her mortgage.
The worked example
The numbers on this page model a $550,000 loan at 6.2% over 30 years — a realistic Australian mortgage. Here is what changes when you apply the strategy (extra per month: $200/mo):
| Bank’s plan | With this strategy | Difference | |
|---|---|---|---|
| Time to pay off | 30.0 years | 25.8 years | −4.3 years |
| Total interest paid | $662,689 | $551,811 | −$110,878 |
Drag the slider to change the assumption and watch the payoff date move:
How to do it
- Confirm your loan allows extra repayments (variable loans: almost always; fixed loans: usually capped at $10k–$30k per year).
- Set the extra as an automatic increase to your scheduled repayment, not a manual transfer — automation is what makes this strategy stick.
- Round to a number you won’t notice: many people simply round their repayment up to the next $100.
- Increase it whenever your pay rises — you’ll never miss money you never saw.
Watch-outs
- On fixed-rate loans, exceeding the annual extra-repayment cap can trigger break costs — check your cap first.
- Make sure the extra shortens the term rather than reducing future minimum repayments; tell your lender explicitly if asked.
- Don’t run extra repayments while carrying credit-card debt at 20% — clear that first.
Frequently asked questions
Is it better to pay extra monthly or as one annual lump sum?
Monthly, slightly — because interest is calculated daily, money applied earlier saves more, and twelve monthly payments land on average six months earlier than one end-of-year lump sum. But the difference is small; consistency matters far more than cadence.
Do extra repayments reduce my monthly payment or my loan term?
By default they shorten the term, which is where the large interest savings come from. Your scheduled repayment stays the same; the loan just ends years sooner. If you ask the lender to recalculate your minimum instead, your payment drops but the term (and most of the benefit) stays.
Should I make extra repayments or invest the money instead?
Extra repayments earn a guaranteed, tax-free return equal to your mortgage rate — around 6% risk-free is the benchmark any alternative has to beat after tax and risk. Investing can beat it over long horizons, but not reliably and not risk-free. Many people split the difference. This is a personal decision — model both and talk to an adviser for your situation.
Can I access extra repayments if I need the money back?
On most variable loans, yes, through redraw — though lenders can set minimums, fees, or restrict access. If guaranteed access matters, put the extra money in an offset account instead: identical interest saving, zero access risk.