Australian money and a cut out of a house over an Australian suburb

With rising living costs and an uncertain economy, we’re all looking for ways to trim the budget – and what better way to save than on your mortgage?

One of the biggest expenses in any household is the mortgage repayment, with an average $350,000 mortgage snatching a little over $2,580 from your bank account each month. Over the course of a 25-year home loan, this generates a staggering $425,000 in interest payable to the bank (you can use our mortgage calculator to work out your repayments).

However, with a few small, strategic changes to the way you manage your mortgage, you can actually reduce the amount of interest you pay and reduce the overall term of your home loan.

"Increasing your repayments by any amount above the minimum will reduce the principal loan amount owed, thereby reducing the loan’s term and interest paid over its lifetime," says Mortgage Choice spokesperson Kristy Sheppard.

"This builds a safeguard, helping prepare your financial position for unforeseen changes. Best of all, if misfortune doesn’t come your way you will be living debt-free sooner, which can open the door to other investment opportunities to help you build a stronger financial future."

To help you manage your mortgage more effectively and reduce the amount of interest you pay your lender each month, Mortgage Choice offers the following helpful hints to get you ahead:

Tip #1: Cut your payments in half

This tried and true strategy has been saving mortgage-holders bucketloads of cash for years. You simply take your monthly mortgage repayment – say $2,000 – and cut it in half ($1,000), and then pay this amount fortnightly instead of monthly. "With monthly repayments of $2,000, you will pay $24,000 off your loan by year’s end," Sheppard says. "However if you pay fortnightly, by splitting the monthly repayment in half and making repayments of $1,000 every two weeks, you will pay $26,000, as there are 26 fortnights in a year."

Tip #2: Round up

By rounding up your home loan repayment amount even a small amount, you can make a significant dent on your mortgage interest bill. Take a loan of $350,000 at 7% over 30 years. If the monthly repayments of $2,329 were rounded up to $2,500 at five years, in and that continued until the end of the loan term, the loan will be repaid roughly four years early, and the interest owed will be reduced by over $69,200.

Tip #3: Take advantage of extra funds

An offset account attached to the home loan account acts as savings account that can substantially reduce the interest accumulated on the loan amount. "For example, if the above-mentioned loan has $5,000 deposited in a full offset account from day one, the term is reduced by approximately 14 months and the interest owed is reduced by around $33,856," Sheppard says.

Tip #4: Get a health check

"Review your loan to decide if you need all the features you may be paying a premium for," Sheppard suggests. "Compare it against others by getting a home loan health check from an experienced mortgage broker, to see if you can save money by negotiating a better deal with your current lender or by switching lenders."

This post was originally written in September 2011 and was updated for formatting in June 2018