How to avoid overpaying on your mortgage in 2022

Here are 7 ways to pay less home loan interest in 2022 so you can get closer to being debt-free

22 December 2021|3 minute read

man putting coins in a jar

Your mortgage will likely be your biggest financial commitment, so it’s smart to always be on the lookout for ways to save.

The sooner you pay off your home loan debt, the less interest you’ll have to pay.

We all want to make our home loan repayments as low as possible, so we’ve come up with 7 ways to help you save on home loan interest.

1. Make extra repayments

If you find yourself with some extra cash in 2022, why not put it towards paying off your home loan?

While extra home loan repayments aren’t as exciting as a holiday in Byron Bay, paying down your debt faster means you’re well on your way to owning your home outright.

Plus, paying down your home loan sooner means that you’ll be charged less interest – potentially saving you thousands!

When you make extra repayments, be careful not to bite off more than you can chew.

Be sensible and realistic about what you can afford and think about setting up a redraw facility in case you might like to dip back into those additional repayments in the future.

Bear in mind that if you have a fixed rate mortgage, you may face restrictions on making extra repayments.

Some lenders won’t allow you to make extra repayments towards your fixed rate home loan, whereas others will allow you to make extra repayments up to a specified limit.

With variable rate home loans, you can typically make unlimited additional repayments.

2. Refinance to a lower interest rate

As obvious as it may sound, have you checked to make sure your interest rate is on par with what lenders are offering new customers today?

While negotiating or refinancing to a lower rate may seem like a hassle, even a minor reduction has the potential to save you thousands of dollars over the years.

You might not even need to do a full refinance to lower your rate. Sometimes all it takes is a call to your lender to ask for the same rate that’s on offer to new customers.

Of course, it will help if you have a positive home loan repayment history and a Loan to Value Ratio below 80%.

If you’re not a confident negotiator, your local Aussie Broker can talk to your lender on your behalf.

3. Avoid interest-only home loans

Getting an interest-only home loan is one way to increase the amount of interest you’ll eventually pay.

Because you are only paying interest, you aren’t making your loan balance any smaller. This means it could take longer to repay your loan and you’ll pay more interest over the life of the loan.

Not only this, but it can be a nasty shock to the system when the interest-only period ends and your repayments are suddenly much larger.

However, interest-only loans can have their benefits for the strategic investor. For example, if you intend to buy and sell quickly, once the property has risen in value, it can make sense to avoid paying down the principal (loan amount).

4. Open an offset account or redraw facility

An offset account can help you reduce the amount of interest you are charged on your home loan repayments.

An offset account operates like a transactional savings account. Any money kept in this account offsets the interest you get charged on your home loan.

For example, if you have a home loan balance of $600,000 with $100,000 in an offset account, you’ll only be charged interest on $500,000 of your overall loan balance.

If you’re a borrower who likes to make extra repayments, opening a redraw facility will allow you to redraw these additional repayments when you need them.

Since you’re making extra repayments to your principal, you’ll naturally be charged less interest since your loan is smaller, but you’ll have the flexibility to access those payments if necessary (e.g. for a renovation or major expense)

5. Skip the fee-heavy home loans

With many lenders offering zero-fee or low-fee home loans, it’s often not worth it to fork out on an expensive home loan.

Your mortgage will cost you enough over the years, so it’s a good idea to cut back on expenses where you can.

Some of the fees you might be paying could include:

  • Ongoing home loan service and administrative fees
  • Offset account fees
  • Redraw facility fees

Switching to a zero-fee home loan won’t be the right move for everyone. It’s important to consider your loan as a whole and what features you need.

Plus, sometimes lenders will apply a higher interest rate to account for the lack of home loan fees. Always do the maths to get the entire picture of what you’ll be spending on your home loan.

5. Switch to fortnightly or weekly repayments

This is a minor change you can make that will help you repay your home loan a little faster without you even noticing!

By making fortnightly rather than monthly repayments, you’ll end up making one extra month’s worth of repayments per year.

Doing this will speed up the repayment process and help you save on interest.

Monthly repayments are typically the default, but if you get in touch with your lender they’ll explain how you can pay more regularly.

7. Keep on top of market updates

Savvy borrowers who want to save will keep an eye on the market. If you know when rates are likely to rise, you can prepare better.

If you know what rates different lenders are offering, you’ll find it easier to keep your rate competitive.

Plus, the more knowledge you have about home loans, interest rates and property, the more confident you will become in managing your own loan and property.

If you want to find out how competitive your home loan interest rate is or learn more about your refinancing options, book an appointment with your local Aussie Broker today.

Connect with an Aussie Broker

Keep learning

Home loan refinancing documents and paperwork

Discover the documents and paperwork you’ll need when you decide to refinance your home loan.
Read more

Refinancing checklist

Refinancing requires many steps and documents to proceed. Ensure you’re ready to refinance your home loan with Aussie’s checklist.
Read more