Make Your Mortgage Disappear Quicker with an Interest Rate Discount

By Kristie Kwok on 22 Jan 2014
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A small interest rate drop can significantly reduce the term of your mortgage.

Especially if you combine other interest saving strategies such as making fortnightly repayments, putting in extra payments whenever possible, and using an offset account

For example, on an original amount borrowed of $300,000 and a variable rate of 4.5 per cent p.a., a drop of interest rate to 4.25 per cent can shorten your mortgage by 11 months, assuming monthly repayments of $2,000. 

If you cut your repayments into two and pay fortnightly instead, you will benefit even further and shorten the term of your mortgage by 2.5 years.

Frequency of Repayments

Repayment Amount

Interest Rate

Time to Repay

Total Repayments




18 years and 5 months





17 years and 6 months





16 years and 4 months





15 years and 11 months



Source: Money Smart

As the above table shows, it is worth reviewing your home loan interest rate if you have had your mortgage for a while.  If it is no longer competitive, refinancing or simply asking your bank for an interest rate discount will save thousands.

Negotiating a Better Deal

It is important that you establish a good relationship with the loan manager or someone within the bank from the outset.  Apart from having a good basis to negotiate a better rate, this person can also provide ongoing support through mortgage advice tailored to your situation.

If you do decide to ask for a lower rate from your current lender, bear in mind that loan managers value quality customers, so make sure you can bring to the table loan statements showing on time mortgage repayments to strengthen your negotiation position.

“It is worth reviewing your home loan interest rate if you have had your mortgage for a while…”

Prior to meeting your loan manager, you should also have some knowledge of what the available rates are, so that you are clear with what is reasonable.

Interestingly, a study carried out by RateCity found that the gap between the lowest available variable rate and the highest rate has widened to 2.01 percentage points.

“What this means for borrowers is bigger savings for those who seek out competitive rates and more money wasted for those who don’t,” said Alex Parsons, chief executive of RateCity.

In the event that your current lender refuses to deliver an interest rate discount, you can put your research into good use and threaten to switch to a better deal, which may encourage them to change their mind. 

However, if this strategy fails, refinancing might be your only option.

Making The Same Level of Repayments

Once you have achieved a lower rate, keeping the same repayment strategy allows you to make additional payments to chip away at the principle amount owed, which will help to make your mortgage disappear quicker in the long run. 

According to Jessica Darnbrough from Mortgage Choice, it will also help you to cope better when the interest rate eventually increases.

“Paying extra on your mortgage now can provide you with a certain level of comfort, knowing that you will be able to make your mortgage repayments if and when interest rates rise in the future,” she said.

The advice provided on this website is general advice only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this advice you should seek your own independent advice, having regard to the appropriateness, your objectives, financial situation and needs.

About the Author

Kristie Kwok is a Street News writer and a fully qualified chartered accountant with a Bachelor of Accounting and Finance degree. Kristie has a passion for all aspects related to property. She also has a strong interest in the economy and financial markets. Kristie has worked for reputable corporates such as KPMG UK, UBS, Lloyds Banking Group and the Royal Bank of Scotland.

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