Will these rate drops mean I’ll pay my home loan off quicker?

Finance Mar 18, 2020

2 min read


In short, yes.

But as always, there’s a bit of a caveat on that.

Each time your lender drops your home loan rates, quite often you’ll receive an email or letter communicating the new rate and your new repayment. In order to pay off the loan quicker, you need to ensure you are paying more than the minimum repayment.

For example, if you have a $500,000 loan over 30 years with a 3.5% interest rate then your repayment previously was $2,245 per month. If your rate drops to 3.25% your repayments would drop to $2,176 per month.  If you choose to keep paying back $2,245 then you’d pay an extra $69 per month and pay the loan off 1.5 years early and save yourself $16,164 in interest.

If you have already contacted the lender to organise to repay a higher amount or you have manually set up additional payments, then they won’t automatically readjust your repayment (although there is one big bank who does and you’ll need to contact them each time to ask them not to automatically change the repayment).

If you choose to only pay the minimum, then you’ll just keep paying back the loan over the original agreed term, which in the above example is 30 years.

Depending on where you’re at financially, you might be happy to take every rate cut and repayment drop you can to free up some cash flow for other things. Or you might capitalise on the rate drop and boost your repayment contribution to pay down your mortgage faster.

Little changes make a big impact when we’re making them over decades. Check out your own situation using our online repayments calculator here.

Go to Repayment Calculator