How does your rate stack up?
Finder has launched a free online tool, Roast My Rate, which asks borrowers to enter their interest rate, loan balance and remaining loan term before comparing their position with rates available elsewhere.
Users can even choose how “spicy” they want the verdict to be, from relatively gentle feedback to a full roasting.
The exercise could be particularly useful for Australians hoping to enter retirement without a large mortgage repayment eating into their monthly income.
Finder home loans expert Richard Whitten said paying off a mortgage early could significantly change a household’s finances.
“Once your home loan is gone, hundreds or thousands of dollars a month can be redirected towards investing, super, travel or simply having more freedom over how you spend your money,” he said.
That doesn’t necessarily mean refinancing is the right move. A lower advertised rate needs to be weighed against fees, loan features, eligibility requirements and the cost of switching.
Four ways to pay it off sooner
Extra repayments are one of the simplest options. Even relatively small additional payments can reduce the principal and the amount of interest charged over the life of the loan.
A lump-sum payment, perhaps from a bonus, inheritance or tax refund, can also cut the balance, provided the loan allows additional repayments without penalty.
An offset account can help by reducing the portion of the mortgage on which interest is calculated while keeping the money accessible.
Repayment frequency can also make a difference
Finder says switching from monthly to fortnightly repayments can effectively add an extra monthly repayment each year if the fortnightly amount is calculated as half the normal monthly repayment.
Using a $600,000 mortgage at 6 per cent as an example, Finder estimates this could save about $92,000 in interest and cut roughly four-and-a-half years from the loan.
The savings will vary according to the size of the mortgage, interest rate, remaining term and repayment arrangements.
But for those hoping to clear the mortgage before retirement, checking whether their current rate is still competitive could be time well spent. Half a percentage point may not sound like much. Over the life of a mortgage, it can be worth tens of thousands of dollars.
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