Maintain your repayment

If interest rates fall, maintain your repayments at the same level.  You are already used to not having the extra dollars so stick to the same repayment amount.

For example:

• $300,000 loan at 7.50% (principal and interest) over 30 yearsMonthly repayment - $2,098
• $300,000 loan at 7.25% (principal and interest) over 30 yearsMonthly repayment - $2,047

By continuing to pay $2,098 per month you would be overpaying by $51 per which could save you $40,000 in interest over the term of the loan and reduce your term by over 2 years!

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Round down your balance

At the start of each month, round your account balance down.

Once the interest charges have been added, make an additional payment to round down your balance to the nearest $10 or if you are feeling a bit flush to the nearest $50. It won’t save you a lot – probably less then $0.10 per month, but it all adds up over the term of the loan. Either way you save and it costs you next to nothing!

It's the first day of December - so what better day to start - do it now!  No, really, I mean it.  Go on, open up another browser and go to your on-line banking page and make the payment.  No, now - what are you waiting for?
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Set up a recurring payment.

Most home loans allow you to make additional payment. Set up a recurring payment that you will never miss. Don’t aim too high. Make sure it is an amount that you will never miss. If you are likely to miss it – you are likely to stop the repayment in the future. Start low and if you can increase the amount over time all the better, but even $10 per week will make a huge difference over time! So how much could an extra $10 per week save you??

Well, you may be surprised to hear that an additional $10 per week could save you around $35,000 in interest over the term of the loan and reduce your term by nearly 2 years. Would you have thought that $10 per week could make such an impact?

If there are 2 of you and you both put in an extra $10 per week your savings could double!!

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Tip 1 - Move to fortnightly repayments

Rather than 12 monthly payments you will actually make 26 fortnightly payments in a year.  You will save on interest and you will end up paying off more capital in any given year.

For a $300,000 loan over 30 years this could save you almost $120,000 in interest payments over the term of the loan and you could reduce the term of your loan by around 7 years!

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Home loans – back to basics

With all the talk of Interest Rates changes I though it might be worth looking at home loans and how to get rid of your home loan ASAP.

Firstly, unless you are very strict with your money and have a good handle on exactly what you are spending try to avoid an ‘All in one’ portfolio type loan which work like a normal bank account in permanent overdraft.

These loans are extremely flexible, but the lenders are banking on you getting lost with your budget and essentially treating it as an interest only arrangement – always reverting back to your max overdraft limit.

As with anything you can use the flexibility to your advantage, but be very careful. If you are not great at budgeting do not use the loan account as your everyday bank account – maintain a separate every day transaction account.

The thing to realize is that despite what they say the banks actually want you to be in debt for as long as possible – that is how they make their money so when you are offered fancy new home loan product, make sure you know exactly what you are signing up to.

The biggest mistake is using home loans to free up cash. Using home loans as a cash flow tool is extremely risky and your only aim with your home loan should be to pay it off ASAP. Reduce the term as much as you can and overpay as much as you can afford as often as you can afford.

There are people out there who still promote interest only loans – but my view – steer well clear of them unless it’s for an investment property and you know exactly what you are doing.

Over the coming days I will give you some easy and practical ideas on how to pay your home loan off quicker...................


All the examples are based an initial loan of $300,000 over 30 years at a rate of 7.5%. The savings are not exact and are designed to be nothing more than thought provoking. The scenarios are generic and do not take individual circumstances into account. You should seek independent financial advice before making any significant changes to your financial products.

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