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Investors advised to reduce their debt

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Australian mortgage holders have been told now is the best time to pay down their home loans and make additional repayments before interest rates inevitably rise again.

Smartline Personal Mortgage Advisers said Australians had the best opportunity in 20 years to get ahead of their home loan as a result of ongoing low interest rates.

The brokerage said paying an extra $100 a week above the required repayment equates to interest savings in excess of $30,000 over five years and more than $115,000 over the life of the loan.

“With the recent RBA decision to hold the cash rate at 2.5 per cent again, current interest rate levels represent enormous savings to borrowers,” executive director Joe Sirianni said.

“Consequently, there has not been a better time to make additional repayments on your mortgage for 20 years. It very much highlights the concept of spending money to make money.”

Smartline said a $300,000 mortgage at five per cent would cost a borrower around $72,114 over the first five years. The same loan amount would cost around $102,149 in interest at seven per cent, the average variable home loan interest rate in Australia over the past 15 years.

At five per cent, a $300,000 30-year mortgage required a weekly repayment of $372, according to Smartline. The brokerage said if borrowers add $100 a week to the repayment ($472) they would pay off the loan 11 years faster and save $115,000 in interest.

“There’s no doubt that now is the time to pay down debt more aggressively,” Mr Sirianni said. “When interest rates are low they absorb less of your repayments. This reduced interest expense frees up more of your repayment to reduce your principal debt.

“Now is the time for those with a home loan to be making hay while the sun shines.”

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