On home loan repayments to minimise pain

People can refinance with their own bank or find a new lender, as competition is fierce for customers with plenty of equity in their homes.

2. CONSOLIDATE DEBTS

While paying about 5 per cent for your mortgage seems tough after years of 2 per cent interest rates, the cost is tiny compared with the rates many people pay on their credit cards – about 20 per cent.

A $10,000 credit card balance is often costing $2000 a year to service, without repaying any of the outstanding debt. Many consumers have multiple credit cards and personal loans, and consolidating these into a low-rate loan such as a mortgage can cut total interest costs by hundreds of dollars a month.

3. EXTRA REPAYMENTS

This strategy requires more effort because you have to find the extra cash to pump into the home loan.

Trawling through bank and credit card statements may uncover recurring expenses that have been forgotten, while there are many tips online for those seeking money-saving advice.

Canstar says if you can pay an extra $500 a month off a typical mortgage, the interest bill could be cut by almost $185,000 and the loan repaid about nine years earlier.

4. PAY MORE FREQUENTLY

Repayments on a $500,000 home loan are $2902 a month, which when divided into four comes to $726 a week, Canstar says.

“If you set up a direct debit for this amount each week and make 52 repayments, it’s a way of paying an extra $2928 per year off your loan, which can cut your interest bill over the life of the loan by over $117,000, it says. The loan gets repaid four years and seven months sooner.

5. SWITCH TO INTEREST-ONLY

This is a last resort for borrowers desperate to cut their repayments.

The typical $2902 monthly home loan repayment is based on principal and interest repayments, but if you temporarily switch to interest-only, the repayment drops to $2375 – saving you $527 a month. Remember that with interest-only loans, none of the outstanding debt gets repaid.