Why now is the perfect time to pay more on your mortgage

With three cuts to the RBA official cash rate so far this year, home loan interest rates have plummeted leaving many Aussies enjoying a lower rate on their current loan or jumping ship in search of a better deal. 

But what does a lower interest rate on your home loan mean for your repayments?

While it may seem that a smaller monthly repayment on your home loan is a good thing when you are getting a lower interest rate, it also means you could be preventing yourself from paying down that loan quicker than is possible. 

“Some borrowers opt to save themselves time and money when refinancing their loan simply by continuing their good habits and making the same repayments as they were making previously,” Mozo Banking Expert, Peter Marshall said.

“However, this isn’t a position all homeowners can take. Some have other expenses and financial priorities that could be lightened if their monthly home loan repayments were smaller.”

Look at it this way…

If you are paying back a variable home loan, making principal and interest repayments, every repayment will be split: some of it principal, some of it interest. 

But as time goes on, the amount of interest you pay lessens because your balance gets lower and lower, meaning you are paying off more of the principal with every repayment you make and ultimately speeding up the repayment of your loan. 

So, that’s why keeping the same repayment amount, even with a new lower interest rate, is crucial when you switch to a new loan, or your current lender drops your interest rate. And let’s face it, when your current repayment amount is already nestled within your budget, why not keep it the same and get to the finish line sooner?

Essentially the bigger chunks you can chip away from your loan month to month, the earlier you can wave it goodbye. Plus you’ll also save yourself in interest repayments because your balance will get smaller faster. 

Here’s an example...

Meet Sandra. 

She is five years into a $500,000, 25 year home loan with a variable interest rate of 3.50%. She pays a minimum repayment of $2,503 per month, so has $431,602 left on her loan. 

Sandra is now looking to switch to a provider that has dropped its variable rate to 2.90% after the third RBA rate cut. If she switched to this lender, her minimum repayments on this loan would drop to $2,372 per month - $131 less than her current loan. 

But, if she keeps paying those original repayments she was making on her old loan, on this new loan ($2,503) she would pay it off 16 months sooner and save total of $10,300 in interest. Imagine what Sandra could do with an additional 16 months mortgage-free and over $10,000 in her pocket! 

SOMETHING TO REMEMBER: If you are thinking of switching to a new lender for a more competitive interest rate, keep in mind that you could face a few fees for doing so. 

Do a little bit of homework, and compare your potential interest savings against any potential costs so that you aren’t actually losing out. And if you need a little extra hand with crunching the numbers jump onto our home loan repayments calculator to see how much you could save on interest. 

A few quick tips for managing your home loan repayments 

  • Make sure you can make extra repayments: In order to keep your repayments the same on your new loan, you may have to make extra repayments. The addition of a redraw facility could also come in handy if you are strapped for cash later down the track, but remember the more extra repayments you redraw the longer it will take to pay back your loan. 
  • Choose a loan with an offset account: Offset accounts are a great place to set money aside, like a regular bank account, while reducing the amount of interest you pay on your home loan. The less interest you pay, the more your monthly repayment goes towards your principal, and the sooner you pay your loan down.  
  • Take out mortgage protection: If life deals you a bad hand like sickness, injury or job redundancy and you are unable to pay off your home loan, mortgage protection insurance could really help you stay on top of your repayment schedule. The insurance covers your repayments for a certain amount of time so that you’re not set back too far once you are back on your feet. 

Need a hand comparing home loans in search of a more competitive rate? Jump over to our home loan comparison table or have a read of our latest tips and guides.

Home Loans 2019 - rates updated daily

Search promoted home loans below or do a full Mozo database search. Advertiser disclosure.
  • placeholder
    Mozo Experts Choice 2021
    Smart Booster Home Loan

    2 Year Discounted Variable Rate, Owner Occupier, Principal & Interest, <80% LVR

    interest rate
    comparison rate
    Initial monthly repayment
    1.85% p.a.variable for 24 months and then 2.25% p.a. variable
    2.21% p.a.

    New super low introductory rate home loan for two years. Min 20% deposit. No monthly or ongoing fees. Fast settlement times. Mozo award-winning online lender. Friendly, local Australian based team.

    Go to site
    Details
  • placeholder
    Mozo Experts Choice 2021
    UHomeLoan - Discount Offer

    Owner Occupier, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    2.19% p.a. variable
    2.19% p.a.

    Enjoy a super low rate. $0 fees to consider. Fast and easy online application. Free redraw and free extra repayments. Flexible payment terms. Min 20% deposit required.

    Go to site
    Details
  • placeholder
    Mozo Experts Choice 2021
    Celebrate Variable Home Loan

    <60% LVR, Owner Occupier, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    1.99% p.a. variable
    1.99% p.a.

    Fast and efficient online application. Automatic discounts as loan is paid down. Free extra repayments and redraw facility. Zero fees. Min 40% deposit required. Winner of three Mozo Expert's Choice Awards for 2021.

    Go to site
    Details
  • placeholder
    Variable Home Loan

    Owner Occupier, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    1.99% p.a. variable
    1.99% p.a.

    Refinance only. Super-fast digital application process. Zero upfront fees. No on-going service fees. Free 100% offset sub account. Minimum 25% deposit required.

    Go to site
    Details
  • placeholder
    Basic Home Loan

    Owner Occupier, LVR<60%, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    2.14% p.a. variable
    2.14% p.a.

    Competitive low variable rate. No application or account management fees. Flexibility to split your loan and set different repayment types. Fee free withdrawals of your savings.

    Go to site
    Details

* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate, loan amount and term entered. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

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