September 19, 2023 / Sydney, Australia

Reduce your home loan by five years using a single straightforward technique

A straightforward strategy has the potential to significantly reduce the lifespan of a home loan, leading to substantial savings in interest payments. Despite the Reserve Bank of Australia maintaining interest rates, mortgage repayments continue to rise due to prior rate increases and the conclusion of fixed-term loans. This article highlights a cost-effective approach that borrowers can employ to save thousands over the long term, a method often overlooked by lenders.

Interest Rate Stability: The Reserve Bank of Australia has maintained interest rates at a steady level for four consecutive months.

Unforeseen Mortgage Cost Increases: Despite steady interest rates, household mortgage repayments are on the rise due to prior rate hikes and the conclusion of fixed-term loans.

Overlooked Strategy: Many borrowers are unaware of a straightforward technique that can lead to significant long-term savings, and lenders typically do not actively promote it.

Fortnightly Payments: Making fortnightly mortgage payments, instead of monthly, is a key strategy discussed. This practice reduces the outstanding balance more quickly, leading to lower interest costs.

Substantial Savings: An example scenario where a borrower with a $500,000 mortgage can save almost $122,000 in interest and shorten their loan term by over 5 years by making half their monthly payment every two weeks.

Larger Loans, Larger Savings: For borrowers with larger loans, such as $1 million, the interest savings increase significantly.

Standard Monthly Payments: Most standard bank loan contracts are structured for monthly repayments, causing many borrowers to miss out on the potential savings offered by fortnightly payments.

Additional Repayments: In addition to adjusting payment frequency, the article suggests making extra repayments or exploring features like redraw facilities and offset accounts to further reduce interest costs.

Flexibility for Fixed-Rate Loans: Even borrowers with fixed-rate loans have some flexibility to make additional repayments and reduce interest costs.

Timing Matters: Borrowers approaching the end of fixed terms should act proactively to avoid transitioning to the lender's standard variable rate.

5 Simple Ways to Save on Your Mortgage:

- Increase repayment frequency to fortnightly.
- Make extra repayments, regularly or as funds become available.
- Utilize a redraw facility or an offset account.
- Consider renegotiating your current mortgage rate.
- Shop around for a more competitive interest rate.

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