‘How can I get rid of my home loan? It’s killing me’ - hacks to take years off your mortgage

- Many households are aggressively paying down mortgages due to high interest rates and cost-of-living pressures.

- Andrew Chambers advises using “buckets” for disciplined money management to accelerate mortgage repayment.

- Stuart Wills recommends maintaining higher repayments when refixing at lower rates to reduce loan term and interest.

Is it worth the pain of paying off the mortgage faster than necessary? Talk to most mortgage brokers, and they will say yes.

Tella Home Loans chief executive Andrew Chambers says an increasing number of households have been “pretty aggressive” in paying down their mortgage as fast as possible in recent years.

“The burden of debt is not great when the market’s not great,” he says, highlighting the post-boom spike in interest rates, a cost-of-living crisis, and a downturn in the housing market.

Chamber says the focus since the end of 2022 has been on reducing debt levels. “The last three years have been more, ‘How can I get rid of my home loan? It’s killing me’.”

Tella Home Loans chief executive Andrew Chambers: "Avoid buy now-pay later, avoid credit cards, spend [only] what you’ve got." Photo / Supplied

Fundamentally, the only way to pay off the mortgage faster was through accelerated repayment, Chambers says. “It’s the opposite of compound interest on your savings. It’s reducing the compound interest on your home loan. The less principal you’ve got left on the loan, the quicker you’ll repay it so the quicker you accelerate that, the quicker that interest portion drops.”

There are different ways to achieve this, he says. One is through the use of “buckets” or individual accounts with specific purposes.

Buckets could include the standard home loan repayment account, one for making additional repayments, another for groceries and bills, one for clothing, another for entertainment, holidays and so on.

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“And you don’t go into those buckets unless there’s money in them.”

Chambers says money management and discipline are key. “Don’t go credit, basically. Avoid buy now-pay later, avoid credit cards, spend [only] what you’ve got.”

For people not good at managing lots of accounts, simply increase the fortnightly repayments to the maximum affordable and “be done with it”.

Most banks have a mechanism for allowing lump sum payments on fixed mortgages, but it’s not something commonly used, except by people who regularly receive a bonus or commission.

Experts advise homeowners to do their research on rates. Photo / Ted Baghurst

Chamber notes that the home loan interest rate is usually more than the interest a homeowner can earn through savings, another incentive to pay down the loan.

An extra $400 a week on a 20-year loan of $500,000 at 5% would almost cut the loan life in half and save $145,300 in interest, he says.

Mortgage Managers senior advisor Stuart Wills says even an extra $50 a week will pay the mortgage down faster. “We’re relatively passionate about trying to get people to pay the mortgage off quicker, because once they actually understand how much they save, it makes sense to.”

There are ways to be smart about paying down the mortgage, he says, such as understanding bank policies and benefits, as well as the pitfalls of home loan borrowing.

One pitfall that sticks out to Wills relates to refixing. For example, on a $500,000 mortgage with a 6% interest rate, repayments would be about $700 a week. When it comes time to refix, and interest rates have dropped to 4%, the sensible option would be to keep paying the $700 a week, so that more goes onto the principal, Wills says.

Mortgage Managers senior advisor Stuart Wills: "People have ended up in a really difficult financial situation because they thought they were doing the right thing." Photo / Supplied

“This would cut 10 years off your mortgage, potentially saving you $130,000 or more [in interest],” he says. “The problem is, if you shorten the loan term and the interest rate then pops back up to 6%, you’re stuck on a 20-year loan term, and those repayments jump up to $825 a week.

“This happens quite often, and we’ve seen that over the past few years on a number of occasions. People have ended up in a really difficult financial situation because they thought they were doing the right thing, but they did not speak to somebody who could explain the implications of these decisions with the home loan that they had.”

And then there are the benefits that banks don’t advertise. For example, at least one bank offers an “offset” account, Wills says.

It works like this: A mortgage account owing $50,000 with a floating interest rate is pitted against the homeowner’s savings account with the same bank. If the savings account has $30,000, the interest earned on savings and the interest paid on the mortgage (up to $30,000) are wiped.

In effect, the homeowner won’t pay interest on the $30,000 loan, and though they won’t earn interest in savings, savings interest was usually much lower.

And, if there are other accounts with lump sums, they can also be applied to the remaining $20,000 in the floating mortgage account in the same way.

Wills says it pays to know what each bank is offering and to enlist the help of a mortgage advisor. For this reason, he advises against refixing on a banking app because it won’t necessarily give the best solution or any explanations.

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