With the RBA cutting the cash rate to a historic low of 1.75 per cent, how can you take advantage of these historically low rates?
The RBA has not increased the cash rate since November 2010 and this cut could see home loan interest rates dropping to below 4 per cent. This is good news for mortgage holders and we’ve listed just some of the ways you can make the most of the lower rates.
Even though the minimum repayment will fall with the lower interest rates, it may be worth keeping your repayments the same as they are now. There are a number of benefits of paying more than then minimum repayment amount:
- You will repay the home loan sooner.
- You will pay less in interest overall.
- If rates do increase, you won’t notice a change in your repayments as you are already paying extra.
Since interest rates are at a record low and you are eager to repay as much as possible on your home loan, you may want to consider increasing your repayments even further.
Setting goals to repay your home loan sooner will help you stay on track. The State Custodians Loan Repayments Calculator can give you an idea about how much extra you will need to pay to reduce the loan term.
Simply enter your current loan balance, interest rate and remaining term. You then adjust the loan term gradually to see what the repayments would be to pay off the loan sooner. Also take a look at how the Total Interest Payable figure reduces too – this could be a good incentive to start repaying more.
Instead of just spending the money you save on interest, think about how you can make the most out of it. The extra money could go:
- Into your offset account, saving you interest on your home loan
- Into a high interest savings account.
- Towards a deposit for another property.
- Towards an emergency fund to help you avoid any financial pressure in the future if unexpected expenses pop up.
If you have been on the fence about whether to start investing in property, this may be the time to reconsider it. Record low interest rates mean two things:
- Repayments will be lower: If the property is negatively geared, then the amount you need to contribute that is not covered by the rental income will be less. It will also make settling into repayments on an investment property easier with lower repayments. But, if you can afford to pay extra, you can build a buffer for when rates rise.
- Amount you can borrow should increase: With rates decreasing, the rate you are assessed on may also be adjusted allowing you to borrow more. If you are considering an investment property, it is well worth chatting to a lender about what you might be able to afford.
If you are interested in discussing home loan options, our team can go through your options one on one. Give our Lending Specialists a call on 13 72 62 or enter your details here and we will contact you.