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Australia's home loan borrowers refinanced at record levels in August in anticipation of an interest rate rise, although in an encouraging sign for the Reserve Bank, growth in construction-related finance continued to slow.

New housing finance commitments rose by 2.1 per cent in August, the Australian Bureau of Statistics said on Friday. The result, while stronger than market forecasts of 1.8 per cent, was mainly due to a big rise in refinancing.

A record 29.5 per cent of loan approvals were for the refinancing of an existing mortgage, suggesting borrowers are switched to fixed rates before the Reserve Bank tightens credit in the coming months, as many economists now expect.

Speculation of a rate rise has intensified in recent weeks, fuelled by signs of a renewed acceleration in the domestic economy alongside evidence of gathering momentum in the global economy.

On the flipside, loans for the building of new homes rose only marginally and the trend eased for the fifth successive month since peaking in March. This is likely to be welcomed by the RBA, which has warned about an oversupply of new homes.

Demand for established homes, though, remained relatively strong, with loans in that category, excluding refinancing, up 1.3 per cent in August.

The ABS data also showed a slight upturn in the proportion of first home buyers to 13.8 per cent from a record low of 13.6 per cent in July, although this does not appear to reflect any moderation in house prices.

On the contrary, the average loan size for first home buyers rose sharply to $186,700 from $180,600 in July.

Typically, home loan borrowers are rushing to refinance after the horse has bolted. Banks started raising their fixed-rate offers several months ago when bond yields started rising.

The time to fix was in June when markets were speculating that the Reserve Bank might cut rates again.

How to pay your mortgage of sooner.

There are many steps you can take to help pay your loan off faster and save alot of money. Here are some ideas that may help.

1)Pay at a higher rate.

Whilst interest rates are low, it is a good idea to make repayments at a higher level, as if the rates are what they were several years ago. You wont really notice it if rates go up and you'll be paying your loan off quicker, saving you alot of money in interest.

2) Fortnightly Repayments.

One of the simplest and best strategies for reducing the term and cost of your loan is to pay fortnightly rather than monthly.
By splitting your monthly payment in two and paying every fortnight,you are effectively making 13 monthly payments each year. This is so because there are 26 fortnights in a year, but only 12 months. This also reduces your exposure should interest rates rise.

3) Principal Repayments.

In the early years of your mortgage, most of your repayments go to paying interest. By paying off some of the principal early, you will reduce your total interest paid over the term of your loan.

4) Consolidate.

Many lenders will now allow to consolidate all of your debt under the umbrella of your home loan. Therefore instead of paying higher rates for your credit cards, personal loans etc you can consolidate them into one home loan debt.

5) Split Loans.

A split loan allows you to take part of your loan fixed and part as variable. This allows you to hedge your bets as to whether interest rates will rise or fall.
If interest rates rise, you have the security in knowing part of your loan is fixed and wont move. If interest rates don't go up you can use the flexibility of the variable portion to pay that part off more quickly.

6) Offset Accounts.

Having a mortgage that you can pay all of your income into and draw on for living expenses can make a huge difference to the speed at which you pay off your loan. This is so because your whole pay goes into your mortgage account you are reducing the principal on which interest is charged.

7) Using your Equity.

Equity is the difference between the current value of your property and the amount you owe the lender.Many lenders will allow you to borrow against the equity in your home which would let you use these funds for home improvements, purchase another property or further investments.

8) Switch your loan.

By switching out of your current loan and taking out a loan at a lower rate you can save thousands of dollars and cut years off your mortgage. At Loan Site we can show you how.

9) Your first Loan repayment.

Your first loan repayment after you settle your loan is generally due a month after settlement. If you make the first repayment on the settlement date, you are one step ahead of the lender for the term of the loan.

10) Portability.

It is important to make sure your loan is portable. If there is any chance that you will move house during the course of your loan, you need to ensure that your lender will allow you to transfer the loan to your new property without charging you substantial fees to do so.