Top 9 Ways To Reduce Your Mortgage Repayments & Save Thousands

For many Australians, paying monthly mortgage repayments is one of their major headaches, especially if the amount is on the high end. Maybe that’s why you’re here on this guide on how to reduce mortgage repayments.

And imagine no longer having to pay the mortgage and just owning your home outright. That would be convenient, right?

Let’s start with a bit of the basics then. Your monthly mortgage payment is split into two parts:

• Principal, which is the amount you borrowed.

• Interest, which is the bank’s ‘fee’ for lending you the money.

That means the longer your loan runs, the more interest you pay, which ultimately puts you at more risk of mortgage stress. To slash these years (and thousands of dollars) off your mortgage, you need to attack interest from three sides:

• Lower your rate.

• Reduce your balance faster.

• Shorten your loan term

And here’s the good news: you don’t need a huge salary boost to make it happen. Just the right mix of some key strategies will put you on the right track.

How To Reduce Mortgage Repayments? The Top 9 Ways

1. Negotiate a Lower Rate

The easiest first step is to simply ask your lender for a better deal. Many borrowers assume their interest rate is fixed and non-negotiable, but that’s not the case. With the right approach, you can negotiate a lower rate with your lender and reduce your repayments.

Banks and lenders often reserve their best rates for new customers, hoping existing ones won’t notice. But what many don’t realise is that a single phone call can potentially save you hundreds or even thousands each year.

How to Do It: 

1. Call your bank or broker.

2. Mention the better rates you’ve seen elsewhere or even the lower rates your lender offers new customers.

3. Ask directly: “Can you review my home loan rate, or I’ll need to consider refinancing elsewhere.”

See, banks want to keep you—so if you’re on an old rate, chances are they’ll give you a discount to stop you from refinancing.

You are in an ideal position to negotiate if you have: 

• Been a past responsible borrower.

• Good credit history.

• Loan-to-value ratio (LVR) of 80% or less.

• A stable income or employment.

Keep in mind that even a 0.5% drop on a $500k loan saves you $2,500/year!

2. Refinance for Better Terms

If your lender still refuses to budge, then it's time to consider refinancing.

Refinancing involves swapping your existing mortgage for a new one—ideally with better conditions, which include:

• A lower interest rate.

• Reduced loan tenure.

• Better loan features, etc.

However, this might take more time and effort with all the required paperwork, credit checks, and possibly even another property valuation, unless you use a refinance broker.

Though refinancing can be beneficial, always account for additional costs like lender fees, application charges, or break fees if you're ending a fixed-rate loan early. Make sure the savings outweigh the costs before making the switch.

3. Use an Offset Account

An offset account functions in the same way as a day-to-day bank account, but the only difference being that it is tied to your mortgage. 

So, any money you deposit in it offsets the mortgage balance, on which your loan interest is calculated. Essentially, the more money you keep in the offset account, the more you can save on your loan payments.

Let’s say you owe $700,000 on your mortgage, and you have $50,000 sitting in your offset account. You’ll only be charged interest on $650,000, not the full $700,000.

The result? Lower interest, faster loan repayment, and no need to “lock away” your savings. You can still access your money anytime for emergencies or expenses.

You can even maximise it by :

• Getting your salary paid directly into the offset account to maximise savings.

• Using a credit card for bills (paid in full monthly) to keep more money sitting in your offset for longer.

4. Use the Redraw Facility

Redraw in mortgage is another feature that gives you the flexibility to make extra payments to your home loan and withdraw (redraw) them in the future, if needed.

If you have some extra money, you can pay that into your mortgage. This would reduce your principal, which brings down your interest and monthly repayments as well.

You can withdraw back those extra funds if you need them sometime in the future.

Works pretty much like an offset account, although the redraw facility is not a dedicated bank account. Any money you bring in goes directly into your mortgage.

5. Increase Your Repayments

Your mortgage interest is calculated based on your loan balance. By making extra repayments, you will bring down your principal balance faster, which means you will pay less interest and more principal component each time you pay your mortgage repayments.

Over time, that compounding effect can cut years off your loan and save you tens of thousands of dollars in interest. Even small, regular increases can have a massive impact on the total interest you pay and how quickly you pay off your loan.

For instance, let’s assume you have a $500,000 mortgage at 6% interest over 30 years. If you increase your repayments by just $50 per week, you could save over $70,000 in interest and pay off your home loan around 4 years sooner.

6. Make Extra Lump Sum Repayments

A lump sum payment is any larger, one-off payment you make towards your mortgage on top of your regular repayments. These might come from:

• Tax refunds.

• Work bonuses.

• Inheritance.

• Proceeds from selling an asset (like a car or shares).

• Unexpected windfalls. 

Since your mortgage interest is calculated on your remaining balance, when you throw a lump sum at your loan, you’re instantly reducing the amount that’s attracting interest.

Plus, this was one of the 12 best ways to pay off a mortgage faster we mentioned a while back.

However, make sure to check if your home loan allows extra repayments without penalties. Most variable-rate loans do, but some fixed loans have limits on how much you can pay extra each year.

7. Split Your Loan

Some of you may be unsure whether to commit fully to a fixed or variable rate. A split loan lets you have the best of both worlds by dividing your mortgage into two parts:

• A fixed-rate portion with steady repayments that safeguards you against rate hikes.

• A variable portion that allows you to reduce repayments if market rates fall.

This flexibility provides stability while letting you benefit from potential interest rate drops.

Though the most common preferences are 50:50, 60:40, or 80:20, you can split your loan however you like. 

8. Take Advantage of Government Schemes

The Australian Government offers a range of schemes designed to make homeownership more accessible and affordable, like the First Home Owner Grants (FHOG).

Using these schemes smartly can reduce the upfront costs of buying a home, lower your repayments, or help you get into the market sooner.

Some options include:

• Family Home Guarantee: For single parents, helping to buy a home with as little as a 2% deposit.

• First Home Guarantee: For first-time buyers, deposits as low as 5%.

• Regional First Home Buyer Guarantee: For regional Australians, unlocking deposits as low as 5%.

• Super Saver Scheme: Use voluntary super contributions to boost your deposit.

For eligible applicants, these schemes can save thousands upfront or help avoid expensive fees like Lenders Mortgage Insurance (LMI).

9. Review Your Loan Regularly

One of the most overlooked yet powerful strategies for keeping your mortgage repayments under control is to review your loan regularly, at least once a year.

Interest rates, loan products, and your financial situation all change over time. What was a good deal when you first signed your loan may not be the best option now.

Check each year:

• Is your interest rate still competitive?

• Can you negotiate a better deal or refinance?

• Are you making the most of features like the offset account or redraw facility?

Most lenders won’t tell you if you could be saving, but a yearly review keeps you in control. Set a reminder every 12 months or work with a mortgage broker to make sure you’re always getting the best deal.

A Mortgage Broker Can Do It All for You

Unless you’re savvy in the Australian mortgage market, having a broker will help you go through the complexities smoothly. They can help you in the mortgage process from start to finish, and even perform actions for you on your behalf.

That said, the quality of service you get depends on the broker you find. Here at Koalify, we help Aussies dreaming of a home to search, curate, and get a mortgage for free.

No hidden fees, consultation charges, or commissions whatsoever! 

And driven by ASIC’s Best Interests Duty, we guarantee to find you the most suitable home loan that fits your unique needs and goals. 

With our extensive panel of 30+ top lenders and 2,000+ mortgage solutions in Australia, you can unlock opportunities that you might miss otherwise. 

Interested? Contact us to get your dedicated mortgage advisor today!

Note: This information is of a general nature only and does not take into account your objectives, financial situation, or needs. Kindly consider seeking independent, licenced credit advice before acting.

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