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Tips on reducing interest costs
Here are some great ideas for saving money on your home loan interest costs. These are some practical tips that you can act on today and start saving!
The following examples are based on a $250,000 home loan at 9% p.a. for an initial term of 30 years.
Pay half your monthly loan repayment each fortnight
If you currently make monthly payments on your loan, you could pay half that amount each fortnight instead. This will mean you make two extra payments per year, reducing the amount you owe and the interest you’ll pay.
Based on the example above, paying half your mini monthly payment each fortnight would save you over $150,000 in interest costs and you’d pay off your loan 8 years earlier.
Find out how you could reduce your regular loan repayments with our Fine Tune Your Home Loan calculator.
Increase your regular loan repayments
Every little bit helps. If you have any extra money to put towards your loan repayments, even a small amount can knock years off your home loan and save you thousands of dollars.
Just paying an extra $50 a fortnight above the minimum repayment on a $250,000 loan with a 30 year term will mean you pay off your loan 6 years earlier and save 24% in interest payments.
Shorten the term of your loan
Reducing the term of your loan means your repayments will increase and you’ll pay off your loan faster, reducing your overall interest payments.
Switching a $250,000 loan from a 30 year term to a 25 year term could save 20% or $95,000 in interest charges.
Pay off lump sums off your loan*
If you’ve saved up or received a lump sum, using this to reduce the outstanding balance on your home loan could reduce the time it takes to pay off the loan and reduce your overall interest costs.
Paying $10,000 off a $250,000 loan could shorten the loan term by almost 5 years and save 23% in interest charges or the equivalent of $108,000.
*Remember - There could be a ‘break cost’ if you pay back all or part of your fixed rate loan during a fixed period. You can arrange to pay a lump sum at the end of a fixed rate term without break costs. Find out more more about break costs.
Keep your monthly repayments the same when your interest rate drops
This means more of each payment will go towards repaying principal, reducing your outstanding balance faster and helping you save on your overall interest costs.
Think about a revolving credit account
With a revolving credit facility, when you pay your salary into your home loan account your loan balance goes down – meaning you pay less interest. What's more, if you use use a Westpac credit card for your everyday purchases, you'll get up to 55 days interest free. If you then pay off your balance in full when it's due from your Revolving Credit account, you'll save even more interest as you'll keep your loan balance lower for longer.