Analysis by leading comparison website Canstar has found a typical borrower can shave between 10 and 16 years off their mortgage by refinancing to a lower rate, using an offset account and making extra contributions.
It found for a typical $500,000 30-year home loan:
- Switching from an average variable rate of 3.14% to a low rate of 1.89% one year into the mortgage could save $139,000 in interest plus five years and four months of time.
- Paying an extra $200 a month into the mortgage could knock three years and nine months of a mortgage’s life, plus cut $37,000 of interest.
- Keeping $20,000 sitting in an offset could save $28,000 of interest and wipe one year and one month off the loan term.
More than 16 years could be cut off the mortgage if borrowers make bigger extra contributions each month of $500 and hold $50,000 in an offset account, Canstar found.
“Repaying your home loan early can clear both your head space and budget capacity for starting a serious wealth creation push and doesn’t have to come with a lot of pain,” says Canstar group executive financial services Steve Mickenbecker.