MyRate Education Centre

How to save on your home loan

Here are our top tips for how to save on your mortgage:

Get smart
Make regular reviews
Make extra repayments
Live below your means
Borrow less than you can afford

1. Get Smart

A mortgage is likely to be the biggest single debt you will have, and one that will not be paid off for many years. Yet many do not know enough about mortgages and hence fail to get the best deal, eg:

Being taken in by predatory lending
Taking on loans with a higher interest rate (such as line of credit) and paying for features they don't need/use
Being attracted to a low honeymoon rate that reverts to a high ongoing rate

Part of the problem is the overwhelming number of home loans available. Most people just don't have the time to find out which arrangement is best for them. The best way to overcome this is to get smart – spend a bit of time learning how the various types of mortgages work so you'll know exactly what kind of product is best suited for you.

Our education centre can give you a complete overview of home loans in just 2 hours.

2. Make regular reviews

Each time you make an important life change (such as getting married, moving jobs or retiring), make sure you consider whether your current mortgage still suits your circumstances. Any change in income may mean your current home loan no longer makes financial sense. You may even discover you've become eligible for special deals targeted at particular groups such as retirees. Keep an eye on the mortgage market to make sure you catch any special deals that may come along.

We’ve also started an annual Check Your Home Loan Day (2nd July) where we suggest everyone spends 30 mins reviewing their situation.

Our loan comparison checklist may help you.

3. Make extra repayments

You can save large amounts off the overall cost of your loan by making additional repayments as much as you can. In fact, this can make a bigger difference in your total savings than any special loan structuring or small discounts in interest rate (see this useful article from fido.gov.au for more details).

If you get your income directly deposited into your loan balance, redrawing any funds you need for expenses, this will make sure you're always repaying as much as you can.

To work out how much you may save, use our Extra Repayments Calculator.

4. Live below your means

Suppose you get a 10% pay rise. Assuming you have been living a comfortable lifestyle, it does not make financial sense to increase your living expenses by the full 10% as a result. To pay off your home loan sooner, divert substantial amounts of any pay rises you get to your home loan as extra repayments. Having a home loan requires you to live below your means, the gap being used for repayments. If your income increases, that's an easy way to increase that gap without having to cut back on lifestyle.

Our budget planner may help you.

5. Borrow less than you can afford

If you spend most of your after-expenses income on your repayments, this is a tough position to be in. Life throws you regular curveballs and it's very easy to get out of the comfort zone. To avoid this, try to budget so that you can afford repayments that are significantly higher than they actually are (eg. budget for at least 2 rate rises).