The health check for your home financing to set your savings soaring in 2025

With economists widely predicting interest rate cuts are on the horizon in early 2025 – with some predicting the first to take place as early as February – experts say now is the ideal time to give your mortgage a health check.

Just weeks into the new year, Melbourne-based Mortgage Choice broker Joshua Almond said there has already been a lot of talk around interest rate movements, which has piqued interest for people to review their existing debt.

“My advice is, if you haven't looked, or reviewed your mortgage within the last six months, you need to do it,” he said.

Mortgage Choice broker Josh Almond says home owners could benefit from starting the year with a high level discussion with their broker. Picture: supplied

“Engage someone like myself, even if you feel like it's all too hard, we're here to take all that hard work away.

“It can be as simple as a very high level discussion and we can take away all that information and come back with some feedback around what is achievable, what's not, and maybe sometimes it's not as hard as what people might think it to be.”

PropTrack senior economist Paul Ryan said he expected 2025 is going to be a year when there is going to be a lot of competition between lenders.

“It's going pay dividends for people to be looking at their finances,” he said.

Compare your interest rate

Since the last Reserve Bank of Australia cash rate hike in November 2023, AMP head of investment strategy and chief economist Shane Oliver said competition has crept back into the home loan market, and advised if you have not checked your interest rate since, now is the time.

'The Reserve Bank of Australia and the cash rate': youtube.com/mortgagechoice

“It's worthwhile comparing what you're paying against what the competition is offering,” he said.

If your own rate is uncompetitive in comparison, contact your bank for a lower rate, he said.

“If they are not prepared to do that - but in many cases they are because banks don't want to lose customers - and in many cases over the last few years, they have been giving homeowners a discount on their rates.

“It's always the case if you don't do anything and you don't ask, then you don't get lower rates.”

Pay more than the minimum

If you are lucky enough to be granted a rate cut and your cash flow has allowed you to make repayments at a higher level up until now, it is wise to continue doing so to get ahead, Mr Almond advised.

“Don't necessarily reduce your repayments based on any perceived or actual adjustment that may come throughout 2025,” he said.

“We've seen people through the last six to 12 months, as these rates have gone up, they haven't had the means to be able to put any additional money away.

“I think keeping your repayments if possible at the amount that you may have been paying for the last 12 months, is certainly a better strategy.”

Is 2025 the year to leverage equity for an investment purchase?

The new year could  mark the time many mortgage holders decide to make the leap to leverage their home equity for a property investment, and Mr Ryan said many people may find themselves surprised at just how much equity they actually have.

“Property prices have increased quite rapidly across the entire country over the past, coming up five years now, and so a lot of people may have more equity than they realise,” he said.

'What is home equity?': youtube.com/mortgagechoice

“And that equity can be useful for lots of things, for investments, for changing their financial situations into a more comfortable position, into upgrades, and so forth.”

However, Mr Oliver cautioned while leveraging equity is still something worth considering it is important to bear in mind it is not as an attractive option as it was a few years ago, thanks to higher interest rates and lower rental yields.

“The cash flow that you'll be getting from the property will be about 2.5 % to 3% of the value of the property, whereas the mortgage you're paying on your debt is going to be around 7% -ish, so it only stacks up if you're really confident you're going to get strong capital growth,” he said.

The value of an offset account and fixed and variable loans

Mr Almond said while many people incorrectly perceive having an offset account is a “magical ticket” to paying off your mortgage fast, the value of having an offset account should not be understated.

“My view is if you've got any surplus cash flow, it needs to get held in an offset,” he said.

The Reserve Bank of Australia board will make its next interest rate decision on 8 February. Picture: Getty

“If there is opportunity for people to accumulate salaries into an account like that… and retain any surplus monies to help continue to pay your mortgage down quicker - every little bit helps.”

Mr Oliver said many employees are often paid bonuses at the start of a new calendar year and it is worth allocating that into your offset to reduce the balance of your home loan.

At present, fixed interest rates are lower than variable rates, which is partly a reflection of expectations that the cash rate over the next three years will be lower than it currently is, Mr Oliver said.

“Therefore banks are prepared to lend you for two or three years at a lower rate than you pay with a variable rate,” he said.

“But just bear in mind, the saving there might be false if you think, ‘I might as well switch to a fixed rate,’ it could turn out to be a false saving, because if variable rates come down as expected, then they might end up being below current fixed rates.”