Fifteen years watching Sunshine Coast homeowners try to pay off their mortgages faster, and the same three mistakes come up almost every time.
They’re not obvious mistakes. Most homeowners making them are doing everything they’ve been told to do — putting extra into the loan, being disciplined with repayments, refinancing when a better rate comes along. All the right instincts.
But the specific way they’re doing each of those things is quietly costing them years off their loan and tens of thousands of dollars in interest.
Here they are, in the order they most commonly happen.
Mistake 1: Putting extra money into the loan itself, not an offset account
This is the most common one, and it’s probably the most expensive over time.
When you make extra repayments on your mortgage, most banks put that money into what’s called a ‘redraw facility.’ It reduces your loan balance, saves you interest, and you can request it back later if you need it. Sounds fine on paper.
The problem shows up in two places.
First, redraw is slower and less flexible than offset. If you need to pull money back out, you have to request it through the bank. It’s not instant. It’s not always guaranteed. And banks reserve the right to change redraw rules whenever they feel like it.
Second, and this is the big one: money in redraw can create tax problems years later. If your current home ever becomes an investment property (upgrade, move interstate, decide to rent it out), the tax treatment of the loan changes. Money you’ve paid into redraw and then pull out for personal use afterwards is generally not tax-deductible against the property once it becomes an investment. Money that’s been sitting in an offset account, on the other hand, stays clean.
The fix is simple. Instead of putting extra money into the loan, put it into an offset account that’s linked to your loan. Every dollar in the offset reduces the interest you pay by exactly the same amount as if you’d paid it into the loan directly. But it stays yours, instantly accessible, and clean from a tax perspective.
On a $600,000 loan at 6% interest, keeping $50,000 in offset saves you $3,000 a year in interest. Same as paying $50,000 off the loan directly. But with full flexibility and no tax complications later.
If your current loan doesn’t have an offset account, that alone is worth a broker conversation. Most modern home loans include one at no extra cost, and switching lenders to get one usually pays for itself within months.
Mistake 2: Set and forget on your interest rate
This one catches almost everyone.
You take out your loan. You get a rate you’re happy with. You set up your repayments. And then, unless something goes wrong, you never think about it again.
The bank is quietly relying on that. Loyalty pricing is a real thing. New customers get the sharpest rates because they’re being actively competed for. Existing customers slowly drift up because they’re not comparing, not calling, not asking.
Two years into your loan, you’re probably paying 0.3% to 0.6% more than a new customer at the same bank would pay for exactly the same loan.
On a $600,000 loan, every 0.1% of rate difference costs you around $600 a year in interest. A 0.5% gap costs you $3,000 a year, every year, for the remaining term of your loan. That’s tens of thousands of dollars over the life of a mortgage.
The fix is to review your rate every 12 to 18 months. Not every three months, that’s overkill. But once a year, minimum. Compare what you’re currently paying against what’s available in the market. If there’s a meaningful gap, either negotiate with your current lender (they’ll usually match a better offer if pushed), or refinance to a lender who’s actually competitive.
Most homeowners we speak to haven’t reviewed their loan in three years or more. That inertia is what banks price for.
At SCFS, we monitor your rate and ensure you’re getting the best possible deal. If we think there is an opportunity to save some cash or improve your rate, we will let you know.
Mistake 3: Refinancing to a lower rate but taking the new lower repayment as extra cashflow
This is the sneaky one. Most homeowners don’t even realise it’s happening.
You refinance. New lender, lower rate. Your bank calculates your new minimum repayment based on that lower rate. It comes in a couple of hundred dollars a month lower than what you were paying before. You feel like you’ve won.
You have won, but only a fraction of what you could have.
Here’s what actually happens if you take the new lower minimum repayment. Yes, you save on interest at the new rate. But you don’t accelerate the payoff at all. You end up paying off the loan over the same term you would have, just with a lower rate along the way.
Here’s what happens if you keep paying the same repayment level as before the refinance. The extra amount above the new minimum goes straight to the principal every month. Combined with the lower interest rate, you accelerate the payoff by years.
Real numbers on a $600,000 loan. Refinancing from 6.29% to 5.71%:
- If you take the new lower minimum repayment: you save around $220 a month, or roughly $66,000 in interest over the 25-year term.
- If you keep the old repayment level: you save the same $66,000 in interest, plus you pay the loan off approximately 3 years and 4 months earlier, saving another $50,000+ in additional interest that would have accrued in those final years.
Same refinance. Same new rate. Same amount of money out of your account each month. Vastly different outcome.
The fix is to explicitly tell your lender at the time of refinancing that you want to keep your payment level, not have it dropped to the new minimum. Most lenders will do this if you ask, but almost none will do it by default. And most brokers don’t mention it either, because their job technically ends at settlement.
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What this looks like combined
If you’re making all three mistakes right now (a lot of people are), the compounding cost is substantial.
A $600,000 loan borrower on a 6.29% rate, making $500 a month in extra repayments into redraw rather than offset, who hasn’t reviewed their rate in three years, is realistically paying:
- Around $3,000 a year more in interest than they need to (Mistake 2)
- Facing potential tax complications on tens of thousands of extra repayments if the property ever becomes an investment (Mistake 1)
- On track for 3-5 additional years on the loan compared to the version of themselves who fixes all three (Mistake 3, assuming they refinance at some point)
Fixing all three isn’t complicated. It’s a Home Loan Health Check conversation, followed by a bit of restructuring where needed.
Full breakdown of the 3 levers that actually work for accelerated payoff is on our companion post covering how to pay off your mortgage in 7 years.
The Sunshine Coast context
Most Sunshine Coast homeowners we work with are making at least one of these three mistakes. Not because they’re not paying attention, but because banks have designed the system to make the defaults work for the bank, not for the borrower.
If you’d like us to run through your specific loan structure, rate, and repayment setup, book a free 15-minute Home Loan Health Check on our site. We’ll look at all three of the above and give you a straight read on which ones (if any) apply to your situation, and what the fix would look like. No hard sell, no pressure.
And if you’d like the positive framing (what you should be doing rather than what to avoid), our companion post on the three levers for paying off your mortgage in 7 years walks through the same territory from the other direction.
Frequently Asked Questions
For owner-occupiers whose home might one day become an investment, yes, almost always. For owner-occupiers who are absolutely certain the property will never become an investment, the practical difference is smaller (offset is still more flexible and more accessible, but the tax argument doesn’t apply). If in doubt, use offset.
Once every 12 months at minimum. If there’s been meaningful movement in the market (RBA change, major lender price shifts), it’s worth doing an extra check. Reviewing more often than every 6 months usually doesn’t add value.
Sometimes. Larger banks in particular will often match or nearly match a competitive offer if you tell them you’re considering leaving. That said, matching only gets you the current market rate, not the sharpest rate. And it doesn’t fix any structural issues with your existing loan. A proper broker comparison usually finds a better outcome overall than a match from your current bank.
Not necessarily. Mistake 1 (offset vs redraw) usually requires switching lenders if your current loan doesn’t include an offset. Mistake 2 (rate review) can often be resolved with your current lender if they’ll negotiate. Mistake 3 (keeping payment level after refi) is easily fixed with any lender by simply requesting it. So it depends which mistake you’re trying to fix.
Realistically, on a $600,000 loan over its full term, fixing all three is worth roughly $100,000+ in reduced interest paid, plus 3-5 years off the loan term. The specific number depends on your rate, loan balance, and how consistent you are with the extra repayments. A Home Loan Health Check will give you your actual numbers.
Meet Chris Wilson, the heart of Sunshine Coast Financial Solutions (SCFS). With over a decade of experience in finance, Chris started his journey as a broker with Aussie Home Loans in 2009. His dedication earned him the title of Rookie of the Year in 2010. By 2011, he was ready to build a business based on trust and strong partnerships.
