How to reduce your mortgage interest rate and fees

With interest rates continuing to rise, reducing your mortgage interest rate can be a great way to save money so you’re not out of pocket and can keep or invest more of what you earn.

With the help of Lending Specialist Manager at IOOF Finance Choice, Claire Charlton, we’ve put together a four-step plan that may help you decrease your interest rate and reduce mortgage repayments.

Step 1: Negotiate a lower interest rate

If you have a mortgage with a variable interest rate, you can renegotiate your rate with your lender.

According to Claire, the first step is to do your research.

“You want to sound confident when you speak to your lender. That means being armed with all the information you need before you pick up the phone. 

“Check your current interest rate and repayments, then compare it to similar loans elsewhere. If you find a better rate, ask your lender to match it or offer you a lower interest rate.”

Reviewing fees 

According to Claire, when reviewing your fees, look at the comparison rate. This shows the true cost of the loan once fees have been included.
“In addition to the comparison rate, check the one-off fees such as application fees, monthly fees and annual fees. You may also want to ask which ones can be waived.

“Don’t forget to stay on top of what’s happening in the market so that if big changes are made to mortgage interest rates, you can jump on it. It’s the small changes you make now, that can have a huge impact over the lifetime of your mortgage.” 

Switching loans

If your lender is willing to lower your interest rate but that rate is still not competitive with other rates on the market, you may want to consider switching to another lender.

“If you decide to change, make sure you consider all the pros and cons of refinancing. You should make sure the benefits outweigh any fees you could end up paying. This may include costs for closing your current mortgage and applying for another one," says Claire.

Get a home loan health check

Our home loan health check could help you to:

  • find ways to fine-tune your loan
  • get more certainty or flexibility on rate options
  • reduce your repayments
  • pay off your loan sooner.

 Why not start the conversation to see how a Lending Specialist can help you. Enquire Now

Step 2: Commit to extra payments

Consider whether you can afford to pay more than your minimum repayments. 

If you can, Claire suggests putting in extra cash where possible, like a bonus or tax refund into your mortgage. This could save you thousands of dollars in interest and shorten the life of your loan.

Step 3: Consider an offset account

If you have a mortgage with a variable interest rate, an offset account maybe can be beneficial. 

Like a savings or transaction account, you can use it for regular payments. The difference is it’s linked to your mortgage.

“By having the money sitting in an offset account, it effectively reduces the amount you owe on your mortgage, so you end up paying less interest in the end,” says Claire.

“For example, if you have a mortgage of $350,000 and you have an offset account with $10,000, you’ll only pay interest on a loan of $340,000.”

Step 4: Pay off interest and principal

Paying off both the principal and interest on your mortgage, is another strategy to save money by removing your debt faster.

“With an interest-only loan, your repayments are covering the interest on the amount you borrowed. But that’s it.

“If you’re paying off the principal as well, you’re not only reducing the interest, you’re also shortening the term of your loan.” 

Key takeaways

  • Check your interest rate with your lender to make sure it’s still competitive in the current market. If it’s not, negotiate a better rate
  • Consider paying more than the minimum repayments of your loan to help reduce its’ lifespan
  • Use an offset account to reduce your loan balance and the interest you pay on it.

For more information you can contact

This document has been prepared by IOOF Finance Choice Pty Ltd ABN 74 129 728 963 ACL 385191 (IOOF Finance Choice). The information in this document contains general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document you should assess your own circumstances or seek advice from your financial adviser. You should also obtain and consider a copy of the relevant Product Disclosure Statement before you acquire a financial product to determine if it’s right for you. While IOOF Finance Choice has taken all reasonable care in producing the information in this document, IOOF Finance Choice makes no representations in respect of, and, to the extent permitted by law, excludes all warranties in relation to the accuracy or completeness of the information. IOOF Finance Choice, its officers, employees, directors and contractors exclude, to the maximum extent permitted by law, all liability whatsoever for any loss or damage howsoever arising out of reliance, in whole or in part, on the information in this document.