Simple way to save $90,000 off mortgage interest repayments

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Simple way to save $90,000 off mortgage interest repayments

Mortgage holders who can afford to keep up with their repayments will be significantly better off over the long term if they can resist the lure of an interest rate cut.

According to research by Canstar, the average *********** borrower with a $600,000 mortgage and 25 years remaining on their debt could save $89,143 in interest payments simply by keeping their repayments at the same amount they were paying in February.

The data is based on a total of four interest rate cuts, expected in February, May, August and November.

Camera IconImpact of paying more per month on your mortgage. Picture Supplied Credit: Supplied

Canstar insights director, Sally Tindall says the vast majority of Australians are currently holding onto their existing payment, despite a 0.25 per cent rate cut being passed on in full by the banks in February.

“This just illustrates how determined Australians are to get ahead financially, particularly when it relates to their mortgage,” she said.

“Not only will paying extra in your mortgage give you a ******* buffer to fall back on, it also has the potential to release you from the shackles of the mortgage months, if not years, early.”

Not only would the average mortgage holder save thousands in interest, the data shows they would own their house in 21 years instead of 25.

Australians are being reminded of the benefits of paying a higher rate on their monthly repayments ahead of Tuesday’s highly predicted rate cut.

At the time of writing, the money market had factored in a near 95 per cent chance of a cut when the central bank announces their cash rate decision at 2.30pm on Tuesday.

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The Commonwealth Bank confirmed the majority of their customers were currently holding their repayments at previous levels despite the February rate cut.

Commonwealth Bank’s home buying executive general manager, Michael Baumann, said following February’s rate cut about 14 per cent of eligible customers took the opportunity to reduce their direct debit to align with the lower minimum repayment – thereby freeing up their current cash flow.

“For those who did not reduce their direct debit repayments, they may now be making additional repayments on their mortgage, which could help them to pay off their loan faster,” Dr Baumann said.

“These additional payments will also increase the available balance of their loan accounts and customers may have the flexibility to redraw the available balance at any time, for example if they experience an unexpected cost.”

February marked the Reserve Bank’s first rate cut since November 2020, at the height of the Covid-19 pandemic.

The cash rate is currently 4.10 per cent, with RBA governor Michele Bullock to announce any change following the central bank’s two-day board meeting at 2:30pm on Tuesday.

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