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 loan comparisons on Mozo

Mozo may receive payment if you click the products below. We don’t compare the entire market, but you can search our database of 473 home loans.
Last updated 16 June 2024 Important disclosures and comparison rate warning*
  • Unloan Variable

    • Owner Occupier
    • LVR <80%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    5.90 % p.a.
    Initial monthly repayment
    $2,995
    Go to site

    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

  • Basic Home Loan

    • Owner Occupier
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.16 % p.a.
    Initial monthly repayment
    $3,043
    Go to site

    Enjoy a low rate home loan with $0 application fee and $0 ongoing fees. Flexibility to split your loan and set different repayment types. Fee free redraw from your loan using online banking. Flexible ways to repay. 40% Deposit required.

  • Unloan Variable

    • Owner Occupier
    • LVR <80%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    5.90 % p.a.
    Initial monthly repayment
    $2,995
    Go to site

    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

  • Discount Variable Home Loan

    • Owner Occupier
    • LVR<70%
    Interest rate
    5.99 % p.a.
    Variable
    Comparison rate
    6.01 % p.a.
    Initial monthly repayment
    $2,995
    Go to site

    A low rate home loan for owner-occupiers packed with great features including unlimited extra repayments, free online redraw, no application or monthly admin fees. Rate will vary depending on LVR. Winner of a Mozo Experts Choice 2024 Low Cost Home Loan Award^

  • Variable Home Loan 90

    • Principal and Interest
    • LVR <90%
    Interest rate
    6.04 % p.a.
    Variable
    Comparison rate
    6.06 % p.a.
    Initial monthly repayment
    $3,011
    Go to site

    Affordable home loan rate for buyers or refinancers. No monthly or ongoing fees. Option to add an offset for 0.10%. Access to savings with unlimited redraws available. Minimum 10% deposit required.

  • Fixed Rate Loan

    • Owner Occupier
    • Principal & Interest
    • LVR <80%
    Interest rate
    6.09 % p.a.
    Fixed 3 years
    Comparison rate
    6.15 % p.a.
    Initial monthly repayment
    $3,027

    Additional repayments of up to $10K per fixed year. Interest rate discounts available. Waiver of $499 application fee when combined with an Orange Advantage Home Loan.

  • The Better Home Loan Special Offer

    • Owner Occupier
    • Principal & Interest
    • LVR<80%
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.14 % p.a.
    Initial monthly repayment
    $3,043
    Go to site

    Enjoy a variable rate home loan with a bunch of features from Police Credit Union. Make extra repayments at any time without penalty. No monthly, annual or upfront fees. Free online redraw. Minimum 20% deposit. Qualifying criteria applies. Minimum loan amount is 200K. For new customers only. Mozo Experts Choice Home Lender Credit Union of the Year 2023.

  • Basic Home Loan

    • Owner Occupier
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.16 % p.a.
    Initial monthly repayment
    $3,043
    Go to site

    Enjoy a low rate home loan with $0 application fee and $0 ongoing fees. Flexibility to split your loan and set different repayment types. Fee free redraw from your loan using online banking. Flexible ways to repay. 40% Deposit required.

  • Mortgage Simplifier

    • LVR<80%
    • Owner Occupier
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.17 % p.a.
    Initial monthly repayment
    $3,043

    Get a competitive variable rate with ING’s Mortgage Simplifier. Free extra repayments, no monthly or annual fees. Freedom to make free extra repayments or redraws.

  • Offset Home Loan

    • Owner Occupier
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.14 % p.a.
    Variable
    Comparison rate
    6.39 % p.a.
    Initial monthly repayment
    $3,043
    Go to site

    Ability to open up to 10 offset accounts per loan account. Fast online application. Linked Debit Mastercard® with fee-free access at ATMs across Australia. Package a credit card with your home loan and the annual card fee will be waived (T&Cs apply). 40% deposit required.

  • Basic Home Loan

    • Fixed
    • Owner Occupier
    • Principal & Interest
    • LVR<70%
    Interest rate
    6.25 % p.a.
    Fixed 3 years
    Comparison rate
    6.20 % p.a.
    Initial monthly repayment
    $3,079
    Go to site

    No upfront or ongoing fees. Free extra repayments and redraw facility. Option to earn Qantas points. Min 30% deposit required. Borrow up to $750,000.

  • Fixed Rate

    • Owner Occupier
    • Principal & Interest
    • <80% LVR
    Interest rate
    6.59 % p.a.
    Fixed 3 years
    Comparison rate
    7.06 % p.a.
    Initial monthly repayment
    $3,190

    Enjoy up to $3000 cashback for eligible first home buyers and $2000 cashback for refinancers on eligible home loans with the ANZ Fixed Rate Home Loan. Get the security of repayment certainty with a competitive locked in rate. No ongoing fees to pay. Offset account on 1-year fixed loans ($10/month fee applies). Interest-only payments allowed.

image of houses

Need help with refinancing?

You might have questions that need personal answers. We’ve teamed up with the mortgage brokers at Lendi to get you the answers you need, and a home loan deal you deserve.

Learn more

* 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. You can change the loan amount and term in the input boxes at the top of this table. 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

Mozo provides general product information. We don't consider your personal objectives, financial situation or needs and we aren't recommending any specific product to you. You should make your own decision after reading the PDS or offer documentation, or seeking independent advice.

While we pride ourselves on covering a wide range of products, we don't cover every product in the market. If you decide to apply for a product through our website, you will be dealing directly with the provider of that product and not with Mozo.