Mortgage specialists show how to repay your home loan in a decade

Knocking down your home loan debt super-quickly doesn’t have to be a dream. Here’s what it will take.

Repaying a home loan within 10 years might sound impossible, but it could be easier than you think.

Record low interest rates and reduced spending options for the eight million Aussies who used to head overseas every year have created rare opportunities for Australians to seriously smash down their mortgages.

Research group Canstar has crunched the numbers and found an average $400,000 home loan can be reduced from 30 to 10 years with extra monthly repayments of about $2200, and repaid in just five years if you’ve got a lazy $5500 spare each month.

MONEY TALKS

“I reckon 10 years is doable for a lot of people,” says Canstar’s group executive financial services, Steve Mickenbecker.

That $2200 monthly extra repayment equates to $507 a week, which is what many households were paying on international holidays before Covid struck. And if you can’t repay your mortgage in five or 10 years, how about 15 or 20?

“Knocking 10 years off a $400,000 loan at the average interest rate will cost you $528 a month,” Mickenbecker says.

When interest rates climb back to typical levels above 5 per cent, “you would be up for that much anyway”, he says.

“That’s what the future’s going to bring, so why not start making that payment now? It will save you a lot of interest off the loan even if you can’t maintain that for the next 20 years.”

Canstar’s calculations, based on an average mortgage rate of 3.24 per cent and average 30-year mortgage size of $400,000, show the extra repayments needed to wipe out a home loan in:

• Twenty years will be $528 a month.

• Fifteen years will cost an extra $1070 a month.

• Ten years requires $2168 a month.

• Five years needs a spare $5491 each month.

Annie and Kristina Doyle with their son Ted at their home. Picture: Nigel Hallett

MAGIC TIMING

Mickenbecker says today’s ultra-low rates make now a “magical time” to repay because each dollar paid wipes a larger chunk off the loan principal. “Rates will go up,” he says.

Loans.com.au’s managing director, Marie Mortimer, says it makes no sense to leave cash sitting in a bank account when it can be working to cut a mortgage.

“Any spare money you have should be put on your mortgage so you can reduce your interest payments and pay your home off sooner,” she says.

“If you want access to your cash, then it may be wise to use an offset account or a redraw facility allowing you to minimise your interest payments and reduce your principal.”

Mortimer says there are plenty of offset calculators available online to help you work out your potential savings.

Kristina Doyle and her wife Annie have used offset accounts and lump sum payments to repay their mortgage quickly.

Doyle, 33, says the real estate and economic climate right now means fast home loan repayment is an excellent idea.

“Especially with rates as low as they are, you would be silly not to,” she says.

“If you can get as much equity as possible in your home at this point in time, it puts you in a good position for the future.”

The Doyles plan to use the growing equity in their home for further property investment.

Two Red Shoes mortgage broker Rebecca Jarrett-Dalton says paying off a home loan faster won’t happen unless you make it happen.

“It isn’t just about paying more than your standard monthly repayments – it is also about the timing of the repayments and being savvy about your banking processes,” Jarrett-Dalton says.

MORTGAGE MATCHMAKING

Match your repayments to your pay cycle, Jarrett-Dalton says.

“For example, if you get paid on the 15th and 30th of each month, ask the bank to change your repayment dates to the 16th and 1st of each month. This way you don’t have to worry each fortnight or month if the money is going to be in the account.”

Jarrett-Dalton recommends using online calculators to work out what to repay to wipe years off your loan.

“Set a deadline to shrink the balance to $x by a date and track it – gamify your mortgage,” she says.

“You can’t change what you don’t measure, so get to know your numbers and track your progress.

“And flip your banking around – instead of sending all your cash to your savings and then aiming to pay more on your loan, get a minimum figure sent to your savings and all the rest straight into the loan. That includes any overtime as well.”

Canstar’s Mickenbecker says shopping around for the cheapest home loan can deliver huge savings, with lenders’ average variable mortgage rates sitting at 3.24 per cent with the cheapest 1.99 per cent.

“Look at something not much over 2 per cent at the moment for a variable-rate home loan for an owner-occupier,” he says.

Mickenbecker also recommends bringing mortgage repayment day forward to payday “so you are not tempted to spend it”.

Marie Mortimer, managing director of loans.com.au, says offset accounts can be helpful.

FIVE FAST TIPS

1. Shop around for a cheaper interest rate, using a variety of comparison websites.

2. Approach your lender for a lower rate, and if they refuse be prepared to walk.

3. Set tough repayment targets so you have to stretch your finances to succeed – even if you don’t quite get there you’ll still make big inroads into the mortgage.

4. Consider using offset accounts, redraw facilities and switching to fortnightly payments.

5. Go through your household budget line-by-line to spot extra savings that can divert to the mortgage. Pay your mortgage first, and yourself second.