How To Optimise Your Home Loan
6 Powerful Ways to Optimise Your Home Loan and Boost Your Financial Wellbeing
Your home loan is likely one of the biggest financial commitments you will ever make, but that does not mean it has to weigh you down for the next 30 years. In fact, with a few clever strategies and a bit of planning, you can optimise your home loan and potentially save hundreds of thousands of dollars in interest, and years off your repayment term.
This blog is based on season 3 episode 6 of our Podcast Financial Wellbeing with The Money Collective, where we talk through practical steps to help you take back control of your home loan and make your money work smarter, not harder.
1. Understand Your Loan Inside and Out
Before you can optimise your home loan, you need to understand it. Sounds obvious, right? But too many Australians are in the dark about the details of their home loan. What is your current interest rate? What is your loan term? Are you paying principal and interest or just interest only? Knowing these basics is essential to making informed decisions about your financial future.
According to the Australian Bureau of Statistics, the average home loan size for owner occupiers in Australia is now over $600,000. That is a huge chunk of debt, and without a strategy in place, you could be paying far more than necessary. Start by reviewing your home loan statement and logging into your platform or asking your lender for a clear summary of your loan details. Knowledge about your current loan is the first step.
2. Make Extra Repayments and Let Them Work for You
The single most powerful thing you can do to reduce your home loan faster is make additional repayments and let them stay in the loan. Even $50 or $100 extra each week can have a compounding impact that could potentially save you hundreds of thousands in interest over the life of the loan. And no, we are not exaggerating. That $100 a week could shave years off your home loan if you commit to it consistently.
The trick is to set it and forget it. Automate those additional payments and treat them like a non-negotiable bill. Remember, the earlier in your loan you start doing this, the bigger the benefit. That is because most of your early repayments are going toward interest, not principal. By paying more now, you chip away at the balance faster and reduce the interest charged over time.
A winning tip: When there’s excess, put it in.
If the interest rate decreases and repayments drop, you’re already used to paying the previous higher amount and living without, so add the extra into the loan on an automated contribution.
For example, if your loan repayment was $1600 a fortnight but reduces to $1500 due to a drop in interest rate, you could choose to put that extra $100 back into the loan. You’re already used to living without it, so here’s an opportunity to contribute extra where it won’t impact your lifestyle. On a 30 year home loan of $600,000, putting $100 more a fortnight saves approximately $110,000 and 4 years off the loan.
3. Review Your Interest Rate Regularly
You would not accept a 30 percent phone plan increase without asking questions, so why are so many homeowners still paying higher-than-market interest rates? One in four Australians do not know their current interest rate, according to a 2023 Canstar survey. That is a problem, because lenders rarely offer their best rates to existing customers.
Set a calendar reminder to review your rate at least once a year. Call your lender, ask for a better deal and do not be afraid to negotiate. If they cannot come to the table, it might be time to consider refinancing. But only if the numbers stack up after fees and charges. This is where working with a trusted Mortgage Broker comes into play. They should be working for you to compare rates and know when and if you can get a better deal. Optimising your rate can save thousands and help you stay on track with your financial goals.
Based on a 30 year $600,000 home loan, an interest rate reduction of 0.5% could save approximately $70,000 in interest over the life of the loan.
If you’d like to talk about your personal situation, we’re here to help. Book a call to talk about your home loan.
4. Match Your Repayment Frequency to Your Budget
There is a lot of noise out there about whether weekly or fortnightly repayments are better than monthly. Here is the truth: frequency alone will not save you, but paying more than the minimum will. If your budget allows, calculate your monthly repayment and divide it into weekly or fortnightly chunks. This results in extra payments across the year without a major hit to your cash flow.
See this Home Loan Tip for all the details and an example: https://www.themoneycollective.com.au/blog/homeloantips-fortnightly
The frequency of your home loan repayment should depend on the regular rhythms of your budget and spending habits. Align it to whatever works most for you!
This exercise also creates great money habits. If you are being proactive with your payments and tracking your budget closely, you are more likely to spot issues early and stay in control of your finances. Financial capability is about knowing your numbers and making intentional decisions. Adjusting your repayment frequency to suit your lifestyle (such as how often you get paid, your regular expenses, etc) is one of those small tweaks that can contribute to the ease of managing your money.
5. Use an Offset Account or Redraw Facility to Your Advantage
Offset accounts and redraw facilities are two of the most underused tools in the home loan game. If used wisely, they can dramatically reduce the interest you pay over time. An offset account is essentially a transaction account linked to your home loan. The balance in that account offsets your loan balance, reducing the interest you pay.
For example, if you owe $600,000 on a 30 year loan but have $25,000 in an offset account, you are only charged interest on $575,000. This could save $108,000 and 3 years over the life of the loan.
Working with a trusted Mortgage Broker to understand your personal financial situation would be helpful to optimise which type of facility suits your circumstances.
If you are disciplined with your budgeting and keep your savings sitting in offset, you can keep interest down while maintaining flexibility. This is financial resilience in action. It’s planning for the unexpected while reducing debt.
6. Plan for Life’s Changes and Build in Resilience
The best home loan strategy is one that works even when life throws you curveballs. Fixed rates ending, interest rate rises, job changes, and growing families are all part of life’s financial rhythm. What matters most is that you have a plan in place. Know your buffers. Understand your expenses and spending habits. Make adjustments when necessary and do not be afraid to get professional support when things are getting tricky.
At The Money Collective, we talk a lot about financial capability and resilience. Capability is knowing how to manage your money and doing that with confidence; resilience is having a safety net and a plan when things go sideways. Optimising your home loan is about building both. It’s not just about saving money. It’s about reducing stress and creating more freedom in your life.
Get started with our Spending Review spreadsheet, a template to help you review your current spending and understand your ‘number’ - the surplus or shortfall of your income minus your living expenses.
Conclusion: Make Your Mortgage Work for You
You do not have to be a financial expert to get ahead on your home loan. You just need a plan, a few smart strategies, and the willingness to check in on your progress regularly. The goal is not just to pay off your home loan. The goal is to create a life where money creates choice, not pressure. By understanding your home loan, making extra repayments, reviewing your rate, and setting your own financial goals, you are investing in your long-term wellbeing.
If you did all of these things…
On a $600,000 home loan over 30 years
- Save 0.5% interest rate
- Had $25,000 in offset or redraw
- Paid an extra $100 a fortnight
You’ll have saved approximately $256,000 and 6 years off the life of your loan.
But we all know life has a way of not being smooth. Doing all these things, you’ll also have extra, a buffer, so you’ll have more choice when times are tough.
At The Money Collective, we are here to support you with tools, coaching and resources to help you take control of your financial future. Want to run the numbers on your own loan? Start with our Home Loan Repayment Calculator or book a time to chat about money with our team to get personalised support. Because your home loan should work for you.
Listen to the full podcast here: https://www.themoneycollective.com.au/podcast
This article provides general advice only. It does not take into account your objectives, financial situation or needs. Before acting on any information provided, you should consider the appropriateness of the information and the nature of the financial product in regards to your objectives, financial situation and needs. We recommend discussing your personal situation with a financial professional.
Blog article by:
MEL PEARCE
Financial Wellbeing Consultant and Co-Founder
The Money Collective