Homeowners can save thousands in mortgage thanks to one payment tip
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The cost of living continues to take a toll on people’s wallets, and interest rates continue to dominate the headlines.
Many Aussie homeowners are looking for any edge they can get to save money and pay off their mortgages faster.
However, a trick used by savvy borrowers could save homeowners $90,000 in interest and shave years off home loans.
When the Reserve Bank of Australia (RBA) cuts interest rates, a borrower’s minimum required mortgage repayment usually goes down.
However, if they keep paying the same amount before the rate cuts, homeowners can pay off their loans faster and save a fortune in interest.
According to a sample computation by Canstar, individuals with a $600,000 mortgage with 25 years left who repay mortgages at the same level even after rate cuts could save $89,143 in interest.
Apart from the savings, borrowers could pay off their homes four years earlier than the supposed end date.
Why does this work?
When interest rates drop, repayments go towards the principal amount rather than covering interest.
By not reducing repayments, homeowners effectively make extra payments on their loans monthly.
‘Not only will paying extra in your mortgage give you a bigger buffer to fall back on, but it also has the potential to release you from the shackles of the mortgage months, if not years, early,’ Canstar’s data insights director, Sally Tindall, stated.
How the big banks handle repayment changes
Not all banks automatically reduce repayments when rates go down.
Some customers need to contact their bank and ask for lower repayments should they want to pay less monthly.
Otherwise, repayments stay at the same price, which in turn pays loans off faster.
Only 14 per cent of Commonwealth Bank’s eligible customers request a reduction in their repayments after the last rate cut.
The rest keep paying mortgages at the same amount, either by choice or by default.
Meanwhile, ANZ and NAB require their customers to contact them if they want lower repayments.
On the other hand, Westpac and Macquarie automatically reduce repayments if customers have a direct debit set up.
What’s happening with interest rates?
Most economists expect the RBA to cut cash rates by another 0.25 per cent soon.
They also predicted that more cuts may likely happen by the end of the year.
If the cash rate drops from 4.1 per cent to 2.85 per cent by Christmas, that’s a total of 1.5% in rate cuts—potentially the biggest since 2012.
Learn more about the incoming rate cuts here:
Source: ABC News Australia/YouTube
Other ways to get ahead on mortgage
We’d love to hear from you! Have you kept your repayments the same after a rate cut, or do you have other tips for getting ahead on your mortgage? Share your experiences and advice in the comments below—your story could help another member of the Seniors Discount Club save thousands!
Many Aussie homeowners are looking for any edge they can get to save money and pay off their mortgages faster.
However, a trick used by savvy borrowers could save homeowners $90,000 in interest and shave years off home loans.
When the Reserve Bank of Australia (RBA) cuts interest rates, a borrower’s minimum required mortgage repayment usually goes down.
However, if they keep paying the same amount before the rate cuts, homeowners can pay off their loans faster and save a fortune in interest.
According to a sample computation by Canstar, individuals with a $600,000 mortgage with 25 years left who repay mortgages at the same level even after rate cuts could save $89,143 in interest.
Apart from the savings, borrowers could pay off their homes four years earlier than the supposed end date.
Enjoy a stress-free retirement by paying off mortgages at an earlier time. Image Credit: Pexels/RDNE Stock project
Why does this work?
When interest rates drop, repayments go towards the principal amount rather than covering interest.
By not reducing repayments, homeowners effectively make extra payments on their loans monthly.
‘Not only will paying extra in your mortgage give you a bigger buffer to fall back on, but it also has the potential to release you from the shackles of the mortgage months, if not years, early,’ Canstar’s data insights director, Sally Tindall, stated.
How the big banks handle repayment changes
Not all banks automatically reduce repayments when rates go down.
Some customers need to contact their bank and ask for lower repayments should they want to pay less monthly.
Otherwise, repayments stay at the same price, which in turn pays loans off faster.
Only 14 per cent of Commonwealth Bank’s eligible customers request a reduction in their repayments after the last rate cut.
The rest keep paying mortgages at the same amount, either by choice or by default.
Meanwhile, ANZ and NAB require their customers to contact them if they want lower repayments.
On the other hand, Westpac and Macquarie automatically reduce repayments if customers have a direct debit set up.
What’s happening with interest rates?
Most economists expect the RBA to cut cash rates by another 0.25 per cent soon.
They also predicted that more cuts may likely happen by the end of the year.
If the cash rate drops from 4.1 per cent to 2.85 per cent by Christmas, that’s a total of 1.5% in rate cuts—potentially the biggest since 2012.
Learn more about the incoming rate cuts here:
Source: ABC News Australia/YouTube
Other ways to get ahead on mortgage
- Make extra repayments: Even small extra payments (like rounding up to the nearest $100) can make a big difference over time.
- Use an offset account: If your loan has this feature, keeping your savings in an offset account can reduce the interest you pay.
- Switch to fortnightly payments: This results in one extra monthly repayment per year, helping you pay off your loan faster.
- Review loan policies regularly: Make sure you’re on a competitive rate—don’t be afraid to negotiate with your bank or consider refinancing.
- While paying extra on mortgages is a great way to save on interest, homeowners need to keep their balances in check for everyday expenses or emergencies.
