How to Save Money on Your Home Loan When Interest Rates Rise
Interest rates have just risen again and if you're a property owner, you're probably already feeling it. Whether your repayments have gone up, your budget is tighter, or you're just not sure where you stand, the good news is there are practical steps you can take right now to reduce the impact.
Here are 10 things worth looking at.
1. Review Your Home Loan — It Only Takes a Few Minutes
This is the single most impactful thing most property owners can do. Many Australians are sitting on a rate that made sense a few years ago but is no longer competitive. Lenders regularly offer better deals to new customers while existing clients continue paying more.
A home loan review looks at three things: your rate, your product, and your features. Is your rate still competitive? Are you on the right loan type for your current situation? Are you getting the features you actually need?
The numbers speak for themselves. On a $750,000 loan, a 0.50% rate reduction from 6.50% down to 6.00% drops your monthly repayment from approximately $4,742 to $4,496. That's a saving of around $246 per month or nearly $3,000 per year, just from getting a better rate.
A review through us is free. We compare across a wide panel of lenders, and come back to you with options.
2. Use Your Offset Account Properly
If your home loan has an offset account and you're not using it to its full potential, you're leaving money on the table.
An offset account is a transaction account linked to your home loan. The balance in the account reduces the amount of your loan that attracts interest every single day. The simplest and most powerful thing you can do is have your salary deposited directly into your offset. Even if that money gets spent throughout the month, every day it sits there you're paying less interest.
On a $750,000 loan at 6.00%, keeping $20,000 in your offset saves approximately $1,200 in interest per year. Keep $50,000 in there and that saving grows to around $3,000 per year and cuts years off your loan term.
3. Know What's in Your Redraw Facility
If you've been making extra repayments over the years, that money is sitting in your loan and may be accessible via redraw. During a rate rise it's worth knowing exactly what you have available and how straightforward it is to access, because not all lenders make redraw equally easy to use.
If you're not sure what's in your redraw or how your lender handles access, it's worth finding out. This is something we can check for you as part of a loan review.
4. Switch to Weekly or Fortnightly Repayments
If you're currently paying your home loan monthly, switching to weekly or fortnightly repayments is a simple change that can save you a significant amount over the life of your loan.
Because your repayments are hitting your loan more frequently, your balance reduces faster and that means less interest is calculated every single day. On a $750,000 loan at 6.00%, switching from monthly to fortnightly repayments could save you over $40,000 in interest over the life of the loan and cut around 2 to 3 years off your term.
Not all lenders allow weekly repayments, but most offer fortnightly. If yours doesn't, it may be another reason to look at your options.
5. Make Extra Repayments — Even Small Ones
Every extra dollar you put into your loan reduces your outstanding balance, which reduces the interest calculated on that balance and that effect compounds over decades.
On a $750,000 loan at 6.00%, making just $100 in extra repayments per week could save you over $100,000 in interest over the life of the loan and cut approximately 5 to 6 years off your term. Even $50 extra per week makes a meaningful difference over time.
The banks make their money on interest. Every extra repayment you make is money that stays in your pocket rather than theirs.
6. Consider Switching to Interest Only
If your repayments are becoming genuinely difficult to manage, switching to interest only repayments for a period may provide some breathing room. Instead of paying both principal and interest, you're only covering the interest which can reduce your monthly repayment meaningfully.
On a $750,000 loan at 6.00%, an interest only repayment is approximately $3,750 per month compared to $4,496 on principal and interest. That's a saving of around $746 per month.
It's a short term strategy, not a long term solution. But in the right circumstances it can provide critical breathing space.
7. Look at Debt Consolidation
If you're carrying multiple debts at high interest rates, credit cards at 20%, personal loans, Afterpay commitments, a rate rise can make these feel overwhelming on top of an already stretched budget.
Debt consolidation involves rolling some or all of these debts into your home loan, which almost always carries a significantly lower interest rate. This can reduce your total monthly repayments, simplify your finances to a single payment, and free up cash flow each month.
It's not the right solution for everyone and it's important to do it properly. But for many people it provides genuine relief.
8. Have a Guarantor on Your Loan? It May Be Time to Remove Them
If a family member went guarantor on your home loan when you first purchased, a common arrangement for first home buyers, you may now be in a position to release them from that obligation.
Generally once you have 20% equity in your property through repayments or property value growth, lenders will consider releasing the guarantor. This is good for everyone involved. The guarantor's borrowing capacity is freed up and you gain more lender options, which often means access to more competitive rates and products.
If you're not sure what equity position you're in or whether you're eligible, a quick conversation with us can answer that.
9. In Real Financial Hardship? There Are Options
If you're genuinely struggling and finding it difficult to make your repayments, there are formal options available and it's important to know about them.
Redraw to cover repayments: If you have funds available in your redraw facility, some lenders will allow you to use these to cover repayments temporarily while you get back on your feet.
Repayment pause or deferral: Some lenders offer repayment pauses in genuine hardship situations. Interest continues to accrue during this period but it can provide critical breathing space when you need it most.
Financial hardship programs: Every Australian bank and lender is required under the National Consumer Credit Protection Act to have a financial hardship program in place. If you contact your lender and explain your situation, they are obligated to work with you to find a solution, whether that's reduced repayments, a temporary pause, or a loan restructure.
The most important thing is to reach out early to your lender. Missing repayments without communicating impacts your credit file and reduces your options.
Talk to Us
Every situation is different and the right combination of strategies depends on your loan, your lender, and where you're at financially. What works well for one person may not be the right move for another.
If you'd like us to take a look at your home loan and talk through your options, we're here. A review only takes only a few minutes, and could make a significant difference to your financial position.
