The secret to saving even more when rates get cut

What can you do to turn a small drop in interest rates into large savings on your home loan?

If you can handle your current repayments, this page will give you some great tips on how to save money on your loan.

Maintain your current repayments

Did you know that making additional repayments on your home loan is the best way to save money?

The problem is that when you make additional repayments you have to sacrifice the money you use to fund your lifestyle.

But this is not the case when interest rates drop! If you keep making the same repayments, you end up paying more off your loan without having to alter your budget. You are simply accustomed to maintaining those repayments.

An example

If you have a home loan of $400,000 at 8% and are making the minimum principal and interest repayments then you would be paying $2,935 / month.

If rates were to drop 1% then your repayments would reduce to $2,661 / month which would save you $98,585 over the term of your loan. But if you were to continue paying $2,935 / month instead of making the lower repayments then the overall saving would be a massive $256,960 in interest over the term of the loan!

No, that isn’t a typo, check the math for yourself!

Pay more if you can

If you still have plenty of disposable income then why not pay even more? The higher your repayments, the faster you will repay your loan.

With the above example, if you were to pay an additional $300 / month then your savings would increase to $346,082!

How does it work?

It’s actually quite simple! By making higher repayments you pay off the loan faster and are therefore charged less in interest. With the above example you would pay off a 30 year loan in 22.7 years or by paying an additional $300 / month you would pay it off in 18.3 years.

Did you know that for a $400,000 loan at 8% over 30 years you would actually make repayments of $1,056,620? So in other words for a $400,000 loan you would actually pay $656,620 in interest!

This is why making extra repayments and thus paying off the loan as soon as possible, is so important.

When is this not suitable?

Fixed rate loans: Fixed loans have limits in the amount of additional repayments that you can make during the fixed rate period.

Most lenders will charge a fee if you pay more than $10,000 off your loan each year.

You can ask your lender to take extra repayments of up to $750 / month without the risk of going over your $10,000 limit.

Some fixed rate loans are set up with a variable portion so that you can make unlimited additional repayments on that part of the loan.

Investors: Generally, most investors prefer to save more money to invest, rather than repay their investment loan.

If you have a non-tax deductible debt such as a home loan, car loan or credit card then pay those off first.

If you have no other debts than your investment loan, then make the additional repayments into your offset account if you have one.

If not then talk to us so we can give you specific advice for your loan.

Interest only loans: If you have an interest only loan then maybe it is time to consider switching to principal and interest repayments! How do you know if your loan is interest only? Just check your statement to see if your balance is reducing each month or if the balance is staying the same. If you are not sure then give us a call.

How to increase or maintain your repayments

Most lenders can amend your repayment details over the phone. We’ve listed the contact details of some of the common lenders our customers have loans with:

  • CBA / Colonial: Call CBA on 132 407.
  • St George Bank: Call St George on 13 33 30.
  • Westpac: Call Westpac on 132 032.
  • ANZ: Call ANZ on 13 13 14. Note that for most loans ANZ does not automatically reduce your repayments when interest rates fall so you may not need to call them.
  • Citibank: Call Citibank on 1300 361 922 or 13 24 84.
  • AMP: Call AMP Banking on 133 030.
  • Mortgage House: Call Mortgage House on 133 144. In some cases you may have to fax a signed and dated letter to client services on 02 9407 3083

For example. call your lender, quote your account number and ask them how much your repayment was for September 2008. Then just ask them to continue taking those repayments.

They will inform you of whether you need to fill in any forms or fax them a letter.

If you do have to fax them a letter, don’t forget to put your full name, account number, the date, the exact amount you would like your repayments to be and to get all borrowers on the loan to sign the letter.

This is not financial advice

This is general advice about saving money on your home loan not specific financial advice.

Please refer to an accountant or financial planner for financial advice. If you have a question about your home loan, please feel free to call us on 1300 889 743 or enquire online.

  • Baracuda

    I’d like to know just how much I can save if I make extra repayments. Where can I find out about this?

  • Hi Baracuda,

    You can try the extra repayments calculator to work out the length of your new mortgage term and the amount you can save by making additional repayments:
    https://www.homeloanexperts.com.au/mortgage-calculators/extra-mortgage-repayments-calculator/

  • Baracuda

    Thanks!

  • Oscar Jer

    This is good info! What other steps can I take to better manage my home loan?

  • Hey Oscar,

    Thanks for the comment. There are a number of ways you can manage your mortgage and slash it fast. For example, aside from making extra repayments, you can use an offset account of switch to P&I if you had been paying interest only. We have details on these as well as more info on managing your home loan so please feel free to check it out:
    https://www.homeloanexperts.com.au/managing-your-home-loan/

  • Delgado

    Hi, I’m on a fixed rate but I think I can go up to $10k in extra repayments. Just for info, I’d like to know how much in break fees I may have to pay if I make too much or break the fixed contract in any way. Help!

  • Hi Delgado,
    Break fees are calculated by working out the difference between wholesale rates between the time when you applied for your loan and when your loan is repaid and multiplying it by the loan amount and the remaining term of the loan. There is no exact formula though as each lender has their own specific method of working out the fees that they will charge you. This formula should be listed in your loan contract/loan offer. You can also try out the break costs calculator for an estimation:
    https://www.homeloanexperts.com.au/fixed-rate-loans/break-costs-exit-fees/

  • Houser

    I have a home loan with Westpac which I am thinking of having refinanced to another bank, which hasn’t been decided yet. Do you have any pages on different lenders and their strengths / weaknesses?

  • Hello Houser,

    There are many home buyers and those refinancing that don’t know where to start. While looking at the interest rate is important, there’s so much more to choosing the right home loan so we have an entire section filled with expert lender reviews that you can check out to learn of the strengths and drawbacks of different banks and lenders all over Australia. Here’s the link to the section:
    https://www.homeloanexperts.com.au/lender-reviews/

  • Douglas

    I’m new to home loans so wondering just how much of my mortgage repayments will actually be going to be paying off my principal vs the interest..

  • Hey Douglas,
    We have a simple yet detailed infographic on how much of your mortgage repayments actually pay off the interest on your home loan vs the principal so please check it out here:
    https://www.homeloanexperts.com.au/home-loan-interest-repayments/