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There’s no doubt about it, Australian property owners have enjoyed a great run over the last few years thanks to historically low interest rates.

But with the Reserve Bank now strongly hinting at a rate rise in the near future, homeowners should be starting to think about preparing themselves for some tougher times ahead.

So with higher rates on the horizon, what are some of the easiest and most effective ways you can reduce your repayments and ultimately pay off your home loan faster?

Switch to fortnightly repayments

Perhaps the easiest trick to paying off your home loan faster is by taking advantage of the calendar and making the switch from monthly to fortnightly or weekly repayments - assuming your provider offers you the option, that is.

It’s surprisingly simple, but say you decide to make the switch to fortnightly repayments, you’ll now be making 26 annual payments rather than just 12 payments with the monthly option.

For example, if you were making monthly repayments of $2,500 you’d be repaying $30,000 a year, whereas if you made 26 fortnightly payments of $1,250, you’d be repaying $32,500. That means you’ll effectively be paying off an extra month each year!

Boost your extra repayments

If you’re home loan offers them, making the most of free extra repayments can be another great way to chip away at your loan even faster. Whether you make small but regular extra repayments, or contribute a large injection (your yearly bonus for instance) every once in a while, you could end up saving yourself tens of thousands in the long run.

Not convinced? Take a loan of $400,000 for example, which homeowner Emma is paying off over 25 years via fortnightly repayments. According to data from mozo.com.au, the average rate for a loan of this size is 4.34%, meaning Emma would end up forking out $253,470 in interest over the life of the loan.

But if Emma made extra repayments of just $25 a fortnight over the life of the loan, she’d end up saving an impressive $12,230 in interest and paying off the loan a year ahead of schedule!

Reassess and refinance

Time to take it to the next level? One of the most important ways to ensure you’re able to pay off your home loan as fast as possible is by reassessing your current deal and comparing other options to see if it’s worth refinancing. While this could require a bit more effort, it’s certainly something worth doing every few years, especially when just a small rate reduction could make a big difference.

To show you just how much you could save with a better value loan, let’s compare two examples. Take homeowner Emma’s example above where she ended up paying $253,470 in interest over a 25 year period period on a $400,000 with the average interest rate in the Mozo database (for that loan size) of 4.34%.

Now compare that to bcu’s OMG variable rate loan which has an interest rate of 3.79%1. Using the same $400,000 loan scenario, Emma would end up paying just $217,488 in interest over that 25 year period - or a whopping $35,982 less2.

While it could be tempting to reduce your repayments after you refinance to a loan with a lower rate, the real trick here is to try and maintain the same level of repayments - that way you’ll be paying off the loan far more quickly.

Picture of Kirsty Lamont wearing nice red jacket. Director of financial comparison website Mozo

Author bio: 

Kirsty Lamont is a Director at financial comparison website mozo.com.au. She is passionate about helping Australians get a better money deal and helping them make better, more informed choices.

1 – Credit eligibility criteria, terms & conditions, fees & charges apply. All interest rates are annual percentage rates (APR) and variable rates are subject to change. Interest rate correct as at 17/04/2018.

2 – Representative example only.

Important information

Information on this website is general and has been prepared without taking into account your objectives, financial situation or needs. You should consider whether this information is suitable for your objectives, financial situation and needs before acting on the information provided.