In an opinion piece published across Nine mastheads, Ms Pedersen-McKinnon notes that on a $400,000 mortgage total interest over 25 years is almost $400,000, on $700,000 it is $700,000, and so on. She emphasises that this outcome is not inevitable if borrowers take steps to shorten their loan term.
Her first suggestion is to use an offset account properly. By moving savings and everyday funds into a mortgage offset, borrowers can reduce the balance on which interest is calculated. On a $700,000 loan, holding $30,000 in an offset saves more than $105,000 in interest and cuts nearly two years from the loan.
A second method involves using a credit card to keep salary in the offset for a full month, then paying the card in full by the due date. According to her calculations, a household earning $10,000 per month combined with $30,000 in savings could save $136,875 in interest and clear the loan two years and five months early.
Switching from monthly to fortnightly payments, halving the monthly minimum and paying that amount each fortnight, capitalises on the fact that there are 26 fortnights in a year but only 12 months. On a $700,000 loan this saves $134,262 in interest.
Rounding up repayments to a neat higher figure or refinancing to a lower rate while maintaining the same payment also generate substantial savings. Ms Pedersen-McKinnon calculates that moving from an average 6.36 per cent rate to around 6 per cent, while keeping repayments unchanged, saves $102,480 and cuts 1½ years.
The advice is general in nature, and the author recommends borrowers seek professional advice tailored to their circumstances.