Home loan costs can be cut by using a few simple strategies

Home loan pressure will continue regardless of what the Reserve Bank does with rates this year, so it’s wise to seek savings.

Whatever happens with interest rates this year – and let’s be honest, nobody really knows – Australians with home loans will be under pressure for a while.

Even if the Reserve Bank of Australia cuts its official cash rates a few times in 2024, that won’t reduce the repayment burden of 13 official rises since May 2022.

Rate cuts this year became less likely on Thursday after stronger-than-expected employment data, which came just two days after the RBA signalled rate cuts were increasingly likely. The immediate future of interest rates is a guessing game, so people with home loans should considering taking matters into their own hands.

Mortgage repayments have jumped almost 62 per cent in less than two years, but there are several ways borrowers can claw back some costs.

Here are six strategies worth thinking about.

1. EXTRA REPAYMENTS

It’s tough when a cost-of-living crunch has pushed virtually every household expense higher, but borrowers without massive mortgages may find some spare cash to pump into their home loan.

Every dollar extra that is paid

off the principal is a dollar that is not attracting interest at about 6 per cent or more.

2. SHOP AROUND

Competition remains fierce in the mortgage market and there are big differences in what different financial institutions are offering.

For example, research by Canstar has found that lenders’ variable home loans today have rates ranging from 5.89 per cent to 9.39 per cent.

Mortgage brokers and comparison websites can help people work out whether they can potentially save big bucks. Be sure to check more than one comparison site because each can have different deals with different lenders.

High interest rates are squeezing household finances. Picture: iStock

3. HIT OTHER DEBTS HARD

This may seem odd when you have a big mortgage to worry about, but a good financial strategy can be to reduce other small, high-interest debts first, for two key reasons.

Firstly, a higher-interest debt – such as a credit card charging 20 per cent – delivers more savings on every dollar repaid.

And secondly, reducing the overall number of debts delivers a feeling of accomplishment. It’s much easier paying off a $3000 credit card debt rather than a $600,000 mortgage.

4. OFFSET YOUR INTEREST

Mortgage offset accounts direct all your income, such as wages, against the mortgage balance until that money is spent on other bills and household expenses. So once again the outstanding balance is lower than it otherwise could be, reducing interest costs.

Redraw facilities are where borrowers have paid extra cash off their loan but have the ability to draw back on it later if necessary. It works well because people often won’t spend money they don’t see.

5. SHUN SAVINGS FOR NOW

If you have a home loan but also money sitting in a savings account, your finances could be going backwards unnecessarily.

You’ll be paying tax on the savings account interest, which is lower that the interest you’re charged on the mortgage. A double whammy of money lost.

6. BUDGET EVERYTHING

Yes, “budget” is a boring word for many people and has been known to cause eyes to sleepily roll back inside skulls, but tracking everything you spend gives you an idea of where savings can be found.

Once you know where your money goes missing, you can work out how to keep more of it, and there are plenty of apps and online tools that help.

Originally published as Home loan costs can be cut by using a few simple strategies