Your home loan is one of the biggest financial commitments you’ll ever make. Continually managing your mortgage is critical—"set and forget” for even ten of the 25-30 years of your mortgage term is no way to get ahead! Talk to us regularly to ensure your loan product remains the very best one for your needs and circumstances.

If you’d like to talk about your repayment strategies, or it’s time for a home loan health check—we’re here to help you make the most of your finances and reach your financial goals sooner.

The faster you pay off your home loan, the less interest you’ll pay. With proactive strategies to pay your home loan down sooner, you could really save yourself some serious money!

Here are a few tips to help you get ahead.

Pay fortnightly instead of monthly

One of the easiest ways to pay down your mortgage faster than the minimum repayment terms is to make fortnightly repayments instead of monthly. Just by dividing your mortgage payments into two could cut years off your loan term and save significant interest.

This works because 26 fortnights per year equates to 13 monthly repayments every year—paying more without making an impact on your budget. Over a 30-year loan, this could shave up to four years off your loan term and reduce the interest payable over the life of the loan.

Make bigger repayments

In the first few years of any loan, most repayments go towards the interest rather than paying down the loan itself due to a quirk of how compound interest works. By making bigger repayments above the minimum repayment amount the lender sets, you’ll pay more off the loan itself (the principal amount) and reduce the interest that accrues on the principal amount.

Making loan repayments at two or three percentage points above your interest rate also assists your mindset in prioritising reducing your mortgage overall. And if interest rates rise, your budget won’t be impacted as you’re already paying at the higher rate.

If repaying at a higher interest rate is too hard, reverse engineer the equation by considering an extra lump sum i.e. $100 extra per month. Every little bit helps and gets you into a good habit to continually revise the extra repayments in line with when your circumstances improve.

Make the most of low interest rates

When interest rates are low or your interest rate is reduced, this is the optimal time to increase your repayment amounts.

A low-interest rate market also means lenders can offer competitive rates and home loan packages. If your borrowing capacity and net asset position has improved since you got your home loan, you may be in a position to get a better rate from your current lender or a new lender through refinancing.

Consider using a mortgage offset account

Many variable-rate home loan products can be structured or include offset accounts as a feature. Using an offset account could help you put any extra cash to work on your home loan—even if you don’t want to use it to pay off the home loan itself.

An offset account is a savings or transaction account that’s linked to your home loan. The “offset” is about reducing the interest you pay on your home loan. Therefore, the more money in your offset account, the less interest you pay on your home loan. For example, if you have a $300,000 home loan and keep $10,000 in your offset account, you only pay interest on $290,000.

Also, if your savings are in a regular savings account, you must pay tax on the interest it earns. By putting that money into a mortgage offset account instead, you can save on tax and pay down your home loan sooner.

Most commonly, people have their salary paid into an offset account to give themselves the best chance of reducing the interest they pay on the home loan. Because the offset account acts like regular transaction account—where you can access your money whenever you want—having your salary paid into the offset account won’t impact your budget. You may save a small amount of interest each month, but over time it can make a big difference.

All offset accounts are different though. There can be limits on how much can be offset, terms on the types of transactions, and account fees that need to be weighed up against the potential benefits. Your broker will guide you on all these considerations.

Use any lump sums to pay off your mortgage

Again, extra repayments reduce your loan’s principal balance and the interest payable on that principal balance. So, if you get lump sums gifted, get a tax return, or sell that second car and you don’t need those funds for your short-term expenses—pay those lump sums into your mortgage to give yourself the best gift of all. Not all loan products allow extra payments, so talk to us to find out.

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