Extra Loan Payments – Gain Control Fast (2026 Guide)

Managing a home loan can feel like a never-ending cycle of payments and interest. If you're like many Australians, you're likely eager to pay off your mortgage sooner and reduce the total interest paid over the life of the loan. One strategy is to make extra payments, but you might be wondering: do extra loan payments go to principal? Understanding how your extra payments are applied can empower you to make financially savvy decisions and potentially save thousands of dollars in interest.

Understanding Extra Loan Payments

When you make a regular home loan payment, it's generally divided into two parts: the principal and the interest. The principal is the amount you borrowed, while the interest is the cost of borrowing that amount. Over time, as you pay down the principal, the amount of interest you owe decreases. By making extra payments, you can reduce the principal faster, which in turn reduces the interest you pay.

However, whether extra payments go directly to the principal depends on the terms of your loan and your lender's policies. Some lenders allow additional payments to be applied directly to the principal, while others might first apply extra payments to any outstanding fees or to future interest.

Current Market Information and Options

In 2026, the Australian home loan market is characterised by competitive interest rates, typically ranging from 6.49% to 12% depending on the type of loan and the borrower's financial situation. With interest rates having risen over the past few years, more borrowers are looking for ways to minimise their interest burden.

To effectively utilise extra payments, you should understand your lender's policy. Here's a comparison of how different lenders from Esteb and Co's panel might handle extra payments:

It's crucial to read the terms of your loan agreement or speak with a mortgage specialist at Esteb and Co to ensure your extra payments are working effectively for you.

Steps to Ensure Your Payments Go to Principal

To maximise the benefit of extra payments, follow these steps:

1. Review Your Loan Terms: Check if your loan terms specify how extra payments are applied. Look for clauses regarding additional payments.
2. Contact Your Lender: Speak directly with your lender or a mortgage broker from Esteb and Co to confirm how additional payments are processed. It's crucial to have clear confirmation.
3. Specify Your Payment Intent: When making an extra payment, clearly indicate that you want it applied to the principal. This can often be done online or by notifying your lender in writing.
4. Monitor Your Statements: Regularly review your loan statements to ensure that extra payments are being applied according to your instructions.
5. Utilise Online Tools: Many lenders offer online tools or apps to track your loan balance and see the impact of extra payments on your principal.

Tips and Considerations for Making Extra Payments

Here are some expert tips to consider when making extra payments:

• Budget Wisely: Ensure that making extra payments won't compromise your financial stability. Consider setting aside an emergency fund first.
• Payment Frequency: Increasing your payment frequency can also help reduce interest. For example, making fortnightly payments instead of monthly.
• Use Windfalls: Allocate bonuses, tax returns, or other financial windfalls towards your mortgage principal to accelerate repayment.
• Consult a Mortgage Broker: A broker from Esteb and Co can help you understand your options and find a lender with favourable terms for extra payments.
• Re-evaluate Regularly: Review your loan and financial situation periodically to ensure you're still on track to meet your repayment goals.

Frequently Asked Questions

• Do all lenders apply extra payments to the principal? Not always. It varies by lender, so it's essential to verify with your specific lender.
• Can extra payments reduce my loan term? Yes, by reducing the principal faster, you can shorten the loan term and pay less interest overall.
• Is there a fee for making extra payments? Some loans may have fees for extra payments or early repayment, so check your loan terms.
• How can I see the impact of extra payments? Use your lender's online tools or financial apps to model the impact of extra payments on your loan balance and term.
• What if my lender doesn't apply extra payments to the principal? You might consider refinancing with a lender that has more favourable terms for extra payments.
• Are there tax implications for extra payments? Generally, there aren't tax implications for extra payments on a personal home loan, but consult a tax advisor for specific advice.
• Can I change how my extra payments are applied? You may be able to negotiate with your lender or refinance to change how extra payments are applied.