How to ‘tinker’ your home loan to reduce your repayments

The cash rate, and thereby interest rates, are set to remain elevated throughout 2025, with the Reserve Bank of Australia (RBA) indicating inflation mightn't return to target levels until 2026.

This prolonged period of high rates is placing significant pressure on Australian households, especially homeowners managing large mortgages.

I strongly encourage struggling households to consider the benefits of 'home loan tinkering' - ergo, making small changes to reduce the size of your repayments in the short term - and to reach out to a lending expert for assistance.

While tinkering may slightly increase overall costs in the long run, these adjustments can provide much-needed relief and help you avoid drastic measures like selling your home.

There are several practical changes you can make to your home loan to create much needed breathing room. Let's consider my top six options.

Image: Julian Finch, founder of Finch Financial

Top strategies to tinker with your home loan

1. Fix part of your loan

Splitting your home loan into fixed and variable portions can offer a balanced approach.

Fixed rates are currently often more attractive than variable ones, and locking in part of your loan provides stability while keeping some flexibility.

This strategy isn't commonly known, as banks want to direct customers towards standard products.

Splitting a loan into fixed and variable is easy and something finance brokers do every day of the week to help people out.

2. Fix your entire loan

If you prefer absolute certainty and peace of mind, however, locking your entire home loan's interest rate could be worth considering.

This can eliminate repayment surprises and allow for more consistent budgeting.

3. Extend your home loan term temporarily

Extending the length of your home loan - increasing it from 25 years to 30 years, for example - can significantly reduce your monthly repayments. Even a short-term extension can ease financial pressure until rates stabilise.

This tactic is becoming extremely popular, as it helps households reduce the size of their repayments quite a bit. That's because a household with a longer term can repay their debt over a longer period.

Once interest rates start to fall once more, the loan period can be returned to normal. It's worth noting that, generally speaking, the longer it takes to repay a home loan, the higher the overall interest bill.

Though, in the majority of cases, property is an asset that continues to rise in value, so extending your mortgage's term can be a good solution if it means you can keep a hold of the asset.

See also: Australia's first 40-year mortgage

4. Negotiate your interest rate

Your lender may be willing to offer a more competitive rate to retain your business. It's always worth asking for a better deal, especially if you have a strong repayment history.

See also: Tips on getting a discounted interest rate on your home loan

5. Switch to interest only home loan repayments

Temporarily switching your home loan to an interest only mortgage can lower your monthly payments.

It can allow you to focus solely on meeting the interest accruing on your borrowings, without repaying the principal balance.

While not a long term solution, this option can provide temporary relief during financial hardship.

6. Refinance your mortgage to a different lender

While not necessarily tinkering, this approach may be a good solution for anyone not happy with the options their bank is offering.

If your current lender isn't offering competitive terms, refinancing with another lender may lead you to realise a lower rate or more favourable conditions.

Speak to a finance broker and they can provide all the options for you including loan products that the banks don't tell you about.

Stay proactive and stay ahead

High interest rates don't have to mean financial despair. By making informed adjustments, homeowners can weather the storm and maintain control over their finances.

There is still upside risk to interest rates, in that they could still rise instead of falling, meaning a fixed rate option should definitely be a consideration.

Julian Finch is a finance professional and accredited mortgage and finance broker at Finch Financial Services. He specialises in providing expert guidance on financial strategies, loan acquisition, and wealth accumulation, ensuring clients are well informed and empowered in their financial decisions.

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Are you thinking about refinancing to a lower home loan interest rate? Here are some of the most competitive mortgage on the market right now:

Important Information and Comparison Rate Warning

The information provided is general in nature and does not constitute personal financial advice. Please consult a financial advisor to determine the best options for your circumstances.

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