Interest rates: How to save $56,000 on your home loan interest repayments

MORTGAGE customers should not be fooled by interest rates staying on hold and instead need to focus on paying off their home loans faster, experts say.

MORTGAGE customers should not be fooled by the cash rate staying idle and instead they should be focusing on paying extra on their loans.

The Reserve Bank of Australia has kept the cash rate on hold at 1.5 per cent for 22 months now and many borrowers are revelling in the historically low interest rate period.

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But for those keen to make serious headway into their mortgage industry experts say customers should be upping their repayments by as much as possible so they can chip into the principal more quickly.

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Many owner occupier principal and interest deals are below four per cent. Picture: Supplied

Financial services firm Mozo’s database shows the average owner occupier variable rate is 4.35 per cent, leaving borrowers on a $300,000 30-year home loan making minimum monthly repayments of $1493.

But if a customer increased their repayments:

— By $50 per month to $1543 they would save $17,500 in interest charges and cut 1 year and 11 months off their loan term.

— By $100 per month to $1593 they would save $32,434 in interest charges and cut 3 years and 6 months off their loan term.

— By $200 per month to $1693 they would save $56,653 in interest charges and cut 6 years and 3 months off their loan term.

Mortgage customers can save tens of thousands of dollars over their loan term if they pay extra. Picture: Supplied

Mozo spokeswoman Kirsty Lamont said a good strategy is to “ensure your salary is deposited into an offset account” to reduce your interest charges.

“And shifting your mortgage repayments to fortnightly so you can make an extra payment within the year are some of the easier ways to squeeze down your mortgage debt,’’ she said.

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1300homeloan’s managing director John Kolenda said paying extra is a “great strategy” that can save you tens of thousands of dollars over the loan term.

“Any contribution you make at any given time will help reduce your loan term and interest paid because it’s calculated daily on the outstanding balance.”

Canstar spokeswoman Belinda Williamson urged borrowers to “get ahead while it’s affordable.”

Canstar spokeswoman Belinda Williamson urges borrowers to pay extra on their mortgages while interest rates are low. Picture: Supplied

“Paying extra on your mortgage now while rates are at record lows gives you a head start on preparing yourself for when rates ultimately will rise,’’ she said.

“For anyone anticipating a tax return this too could be an opportunity to reduce your loan amount so at least when rates do rise, you’ll be repaying a small loan amount.”

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