Paying an Extra $500 a Month on Your Mortgage — How Much Do You Save?

Exact interest savings and years saved for common Australian loan sizes at current rates.

Paying an extra $500 a month on your mortgage is one of the most effective financial decisions an Australian homeowner can make. On a typical loan it saves $200,000 or more in interest and cuts nearly eight years off a 30-year term. Here are the exact numbers — and how the compounding effect makes this saving so large.

How Much Does an Extra $500/Month Save? — By Loan Size and Rate

Figures below are for a 30-year loan with extra repayments from the start.

30-year term. Extra $500/month from month one. Calculated using standard monthly amortisation. Actual savings vary based on your lender's interest calculation method and when extra repayments begin.

Why the Savings Are So Large

On a $600,000 loan at 6%, paying $500 extra every month does not cost you $500 × 12 × 8 = $48,000 to save $213,000. That would be a 4:1 return, which would already be remarkable. In reality you pay the $500 for fewer years because the loan ends early — so your total extra outlay is actually less than $48,000, yet you save over $200,000 in interest.

The reason is compound interest working in your favour. Every dollar of extra principal you reduce today is a dollar that never accrues interest again — not just next month, but for every remaining month of the loan. The savings multiply over time rather than accumulate linearly.

Is $500 a Month Realistic? Common Sources

For households with a combined income above $120,000, $500 a month extra is often achievable with deliberate budgeting. Common sources:

• Directing one partner's income increase entirely to the mortgage. A $6,000 annual pay rise is exactly $500/month.
• Annual work bonuses split across 12 months. A $6,000 bonus paid directly onto the mortgage each year is equivalent to $500/month in interest savings — and a lump sum applied at the start of the year is slightly more effective than monthly amounts because it reduces the balance earlier.
• Switching from minimum to maximum repayments. If your fixed-rate period caps extra repayments and your variable rate does not, switching to variable can unlock the ability to pay significantly more.
• Rent from a boarder or short-term accommodation. Even occasional rental income of $500/month applied directly to the mortgage can compress the timeline dramatically.

$500/Month Extra vs a $6,000 Annual Lump Sum — Which Is Better?

Both total $6,000 per year, but monthly extra repayments outperform an annual lump sum. The reason: monthly extra repayments reduce your balance every month, so interest is calculated on a lower balance for 11 months before the annual lump sum would have been paid. The difference is not enormous — a few thousand dollars over the life of a 30-year loan — but monthly is consistently better if you have the cash flow to support it.

If your cash flow is uneven (for example, you receive an annual bonus but cannot sustain $500/month from salary alone), a combination approach works well: pay what you can monthly and supplement with lump sums when they arrive. Use the Mortgage Paydown Calculator to model both scenarios side by side.

Things to Check Before Committing

• Fixed rate cap: Many fixed rate loans cap extra repayments at $10,000–$20,000 per year. $500/month = $6,000/year, which is typically within this cap — but verify with your lender.
• Emergency buffer: Before committing to $500/month extra, confirm you have 3–6 months of expenses accessible. If those funds go into the loan and you need them back, redraw approval can take time.
• Offset vs extra repayments: If your loan has an offset account, keeping $500/month in the offset achieves a similar interest saving while keeping the funds accessible. Check whether your loan includes an offset before choosing extra repayments over offset.