Home loan tips to repay your debt a decade in advance

Interest rate cuts are not yet on the Reserve Bank’s agenda, but borrowers still have ways to wipe out a mortgage quickly.

Repaying your home loan faster delivers financial freedom. Picture: iStock

The Reserve Bank of Australia has held fire on interest rates again, and as rate cuts start appearing globally, mortgages could become easier to repay soon – possibly in early 2025.

That opens the door for borrowers being able to pay off their mortgages faster by employing some simple strategies.

They will cost money, however, and for many people it’s a matter of priorities about where spare cash is spent. Other borrowers don’t have any spare cash available following surging living costs in recent years.

And repayment relief seems a long way away for many people. RBA governor Michele Bullock said on Tuesday afternoon that her board had “considered a rate rise, as well as a hold” at its latest meeting, and she noted that the RBA’s views were not aligned with financial market forecasts of a cut here before Christmas.

Borrowers can save big bucks by being proactive about paying their mortgage. Picture: iStock

That’s not good news for borrowers hoping for a cut soon, but people still have the power to reduce the life of their mortgage. Here are five strategies to consider.

1. PAY EXTRA

For those with the financial means, the simplest way to wipe 10 years off a home loan is to pump in extra cash.

Someone with a $600,000 mortgage currently pays $3950 a month on a 25-year loan, according to Moneysmart.gov.au’s mortgage calculator. They would need to increase repayments by $1200 a month to turn that 25-year mortgage into a 15-year mortgage.

2. HELP FROM THE RBA

When the Reserve Bank does start cutting rates – whether that’s early 2025 or later – it will deliver handy assistance to borrowers if they are able to maintain their current level of repayments.

Future RBA rate cuts totalling 1 per cent would give borrowers back $360 a month to pay down their loan faster. If its future cuts totalled 2 per cent, borrowers would get an extra $705 each month.

Remember that the RBA has increased its cash rate by 4.25 percentage points, from 0.1 per cent to the current 4.35 per cent, since May 2022. Economists do not expect the rate to return to previous record-low levels, even if inflation slows as planned.

3. USE OFFSET ACCOUNTS

Mortgage offset accounts allow every spare dollar you have to work on your home loan, without losing access to those dollars.

They allow wages and other income to be paid into the offset account, which reduces the size of the debt on which interest is charged, until that money is spent elsewhere.

Offset accounts won’t deliver the massive savings that extra repayments can provide, but are another tool for borrowers wanting to wipe out their home loan faster.

4. REFINANCE AND SAVE

Getting a new loan has become harder thanks to 13 RBA rate rises since 2022.

On top of that, regulator APRA says lenders must add an extra 3 per cent buffer when assessing loan applications. This means that for a 6.2 per cent home loan interest rate, you must be able to prove you can afford repayments at a 9.2 per cent interest rate.

For borrowers who can tick those boxes, there is the potential for big savings. Some lenders charge interest rates are well above 7 per cent while others are below 5.9 per cent. Big savings right there for those who shop around.

5. FIND EXTRA MONEY

There are countless ways to boost their household income, whether through harnessing your time and existing assets, or targeting excess spending.

Go through bank statements to see areas where you are spending unnecessarily, or search online for money-saving tips across everything from electricity and insurance to groceries and motoring costs.

Can you rent out a spare room, or parking space? Can you pick up part-time or freelance work? If you can save extra and earn extra, repaying home loans a decade early is not an impossible dream.

Originally published as Home loan tips to repay your debt a decade in advance