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How to save interest on your home loan repayments

Collage of a woman thinking about how to save interest on her home loan repayments.

Having a home loan can be one of the few investments that pays off long-term. You accrue home equity and lock wealth into a tangible asset that usually appreciates over time. But with home loan interest rates flying sky-high, mortgage repayments can also feel like a dark money pit in your budget.

So if you’re keen to lower the interest paid on your home loan, let’s investigate the key ways to do it.

Negotiate with your home loan lender

The first thing to do whenever your interest rate repayments get out of hand is to call your lender. Most lenders will be open to negotiating – after all, they’d rather lose a little bit of money in interest than lose your business entirely. 

Compare home loan offers on the market, particularly the ones your lender offers new customers. If the new offer rates are lower than yours, ask if the lender can match them to reward you for being a loyal borrower. 

Your lender will also likely have strategies to help you manage your repayments if a lower interest rate isn’t possible. 

Fill up your offset account

An offset account is a special kind of bank account attached to your home loan that ‘offsets’ the loan amount you’re charged interest on – thus saving your interest. So if you have a $500,000 home loan and $50,000 in an offset, your lender only charges interest on $450,000 of your principal. 

Offset accounts can be transaction or savings accounts, depending on the lender. They’re far more common on variable home loans, too, so if your mortgage doesn’t offer one, switching mortgages to get an offset could be a good reason to refinance

However, their effectiveness as an interest saver depends on how much money you have in the account. If you’re a first home buyer and used most of your savings to fund the home loan deposit, you may not have much left over to put into your offset account. 

Make free extra repayments

Another way to shrink the size of your home loan principal is to make free extra repayments to your home loan. By paying off your loan balance, you decrease the amount of money your lender uses to calculate interest – thus lowering your interest repayments. 

Again, this home loan feature is more common for variable home loans. Its effectiveness also depends on how much you can put towards extra repayments – unless you can lay down a good chunk of money, you may not immediately see a difference. 

Extra repayments are also useful if combined with a free redraw facility. A redraw lets you call upon those funds later in case you need the money back, but remember it’ll likely come with T&Cs. When researching loans, make sure to compare the advantages and disadvantages of an offset account vs. a redraw facility.

Change your mortgage repayment frequency

Home loan lenders typically calculate interest daily, meaning your monthly mortgage repayments include 30 to 31 days of interest. 

If you opt for weekly or bi-weekly payments instead, you’d reduce the number of days of interest. Depending on how the lender amortises (divides up) your principal, you also pay down your home loan faster as well. 

Different lenders use different systems for calculating monthly vs. weekly payments. This hack works if your weekly principal repayments are a quarter of your monthly principal repayments. It doesn’t if they are less than a quarter because you pay less of your principal overall throughout the month. 

Do your research and talk to a financial advisor to see if making more frequent repayments could work for you.

Lower your LVR

Your loan-to-value ratio (LVR) has a unique trick up its sleeve. Generally, lower LVR tiers carry lower interest rates, so if you drop down a tier, you could get a decent interest rate cut, depending on the lender. 

The main ways to decrease your LVR are:

  • Reducing your loan size with extra repayments. 
  • Increasing your home value through renovations or home improvements. 

Keep in mind your home value may also have increased due to capital gains. Getting a property valuation done can help you establish your LVR accurately. Once you know you’re eligible for a lower LVR tier, do your research and call your lender. It could be worth refinancing either with the same lender or a different one to get a lower interest rate.

Split your interest rate

Some home loans are split home loans, meaning part of the interest payment is calculated using a fixed rate and the rest is calculated using a variable rate. This means a portion of your repayments are consistent for a fixed term. 

The main advantage of a split home loan over a full fixed rate home loan is that when interest rates come down, your variable rate does, too, whereas a fixed rate mortgage won’t change until you roll onto your variable rate at the end of the term. 

If you’re wary of further Reserve Bank rate hikes but hesitant to commit to a fixed home loan, splitting your interest rate could be a unique way to save.

Go green with your home loan

Many home loan lenders have turned green to draw in customers. A green home loan is a mortgage that rewards borrowers for investing in a sustainable, energy-efficient property, or turning their existing property into one. 

If your home meets certain eligibility criteria, such as a NatHERs rating of 7+, you may qualify for green home loans that offer cheaper interest rates. 

Even installing features like double-glazed windows, solar panels, or a rainwater harvesting system can improve the green value of your home, as well as the literal value, since a QBE report last year found that greening your home adds up to 10% to its value

Head to our green finance hub for more information on going eco-friendly with your money.

Refinance with an online mortgage lender

Online home loan lenders such as Up and Unloan have revolutionised mortgages by offering competitive and innovative features, smart tools, and powerful apps to control your home loan in real time. 

Not only that, but smaller lenders tend to offer much lower interest rates than the Big Four, making them a great place to start if you want to save.

Compare low interest rate home loans in the table below.

Compare low rate home loans - last updated 19 April 2024

Search promoted home loans below or do a full Mozo database search. Advertiser disclosure
  • Offset Home Loan

    Package, Owner Occupier, LVR<60%, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    6.15% p.a. variable
    6.40% p.a.

    Ability to open up to 10 offset accounts per loan account. Fast online application. Linked Debit Mastercard® with fee-free access at ATMs across Australia. Package a credit card with your home loan and the annual card fee will be waived (T&Cs apply). 40% deposit required.

    Compare
    Details
  • Mozo Expert Choice Badge
    Express Home Loan

    Owner Occupier, Principal & Interest, LVR <90%

    interest rate
    comparison rate
    Initial monthly repayment
    6.01% p.a. variable
    6.14% p.a.

    Get fast online approval from the award-winning Bendigo Bank Express Home Loan. Multiple offset accounts and redraw available. 100% offset on variable rate loans and partial offset on fixed rate. Flexible repayment options. New home loans only.

    Compare
    Details
  • Neat Home Loan

    Owner Occupier, Principal & Interest, LVR <60%

    interest rate
    comparison rate
    Initial monthly repayment
    6.14% p.a. variable
    6.16% p.a.

    Competitively-priced variable rate loan. Ideal for owner occupiers and investors. No service fees to pay. Make free extra repayments and redraws. Flexible repayment schedule available.

    Compare
    Details
  • Basic Home Loan

    Fixed, Owner Occupier, Principal & Interest, LVR<70%

    interest rate
    comparison rate
    Initial monthly repayment
    5.99% p.a.
    fixed 3 years
    6.13% p.a.

    No upfront or ongoing fees. Free extra repayments and redraw facility. Option to earn Qantas points. Min 30% deposit required. Borrow up to $750,000.

    Compare
    Details

* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

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Evlin DuBose
Evlin DuBose
RG146
Senior Money Writer

Evlin is RG146 certified for Generic Knowledge and has become a leading voice in finance news since joining Mozo two years ago. She is regularly featured in Google's Top Stories alongside major publications like News.com.au and Yahoo Finance, and seasoned journalists. Despite being in the industry for just two years, she is Mozo's go-to writer for all things RBA and her research has been referenced by the Victorian Government. With a Bachelor of Communications degree from UTS, where she won the Dean's Merit Award and acted as the Director of Student Publications.