5 Ways to Save Money on Your Mortgage

Mortgage rates are a hot topic right now with all eyes on the mortgage market. In this article we share 5 ways you can save money on your mortgage, and what to do about the expected higher interest rates right now.

Residz Team 3 min read

Mortgage rates are a hot topic right now with all eyes on the mortgage market. The latest announcement from the Reserve Bank of Australia to lift official interest rates for the first time in a decade is causing uncertainty among borrowers and lenders. In this article we share 5 ways you can save money on your mortgage, and what to do about the expected higher interest rates right now.

5 ways to save money on your mortgage

To save money on your mortgage you must consider if you can endure some short-term pain for long-term gain. If so, try all these money-saving ideas:

  1. Make repayments fortnightly or weekly instead of monthly. BankWest explains that interest is calculated daily and raised monthly on the due date. Paying more often reduces the daily amount for this calculation.
  2. Make extra repayments. BankWest says even a small amount extra can add up to a huge saving.
  3. Put your savings into your mortgage account. Your Mortgage website recommends this (instead of having separate savings accounts) to reduce your interest payments.
  4. Regularly review your mortgage. Invest Blue says it’s a good way to find opportunities for savings.
  5. Set up an offset account. National Australia Bank says this links an everyday banking account to your variable rate home loan, and uses the amount in the account to ‘offset’ the loan balance.

Earlier than expected rate rise

Paying higher interest rates will also need to be factored into your budget. The RBA announced earlier than expected that they will be increasing the official cash rate by 0.25% due partly to a “higher than expected” increase in inflation.This will make mortgage rates go up as well, which could increase the amount of money homeowners need to pay in monthly mortgage payments.

Million dollar mortgages

For example, a couple with a million dollar mortgage faced with even just 1% increase in interest rates would pay approximately $480 in extra mortgage repayments per month ie. $5,760 per year. A study by Digital Finance Analytics found in 2020 that 20 percent of homeowners in Sydney had million dollar mortgages. Given the median dwelling price for Australia now sits at over $730,000, many more homeowners will have at least half-million dollar mortgages.

Fixed rate defers the uncertainty for many

Fixed rate mortgage holders will be an exception. According to an article by UNSW Business School's Richard Holden, the proportion of new mortgages that were fixed jumped from about 15 percent in June 2019 to more than 45 percent by September 2021. Many will revert to variable rates in the next year or two.

Questions for mortgage holders

For the variable mortgage holders there are a lot of factors to consider. Will you be able to afford the increased mortgage? Should you refinance your mortgage? Should you lock in a fixed rate in anticipation of further rises? These are questions that you should consult a professional for.

Reduce the “wants”

In the meantime, look at ways you can reduce your discretionary spending to ensure you can meet your new repayment obligations. Find the “wants” in your spending habits that can be swapped for cheaper alternatives:

Given Australians will ‘eat dog food’ before defaulting on their mortgages, I’m sure borrowers will be thinking up many more ways they can cut out those “wants” expenses to ensure they are on track for their mortgage repayments.

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