It’s great news that the recent Reserve Bank Cash Rate Decision has seen banks pass on a reduction to Home Loan Customers. Not all banks passed on the whole amount, but most did.
Some are now suggesting there will be another interest rate cut later this year. Maybe in August/September. It isn’t really possible to predict but even at their current levels, Interest Rates are at historic lows which presents a great opportunity!
When banks reduce the interest rates, most don’t automatically reduce their client’s regular home loan repayments.
So if you keep paying your normal repayment on a principal and interest loan, you’ll be paying off your loan faster. With less interest to pay, you chip away a little faster at the outstanding loan balance. This is fantastic and sets you on the track to owning your home sooner.
But rates will go up! The sentiment in the market will turn and at some point in the 30 year term of a home loan, you’ll be paying a higher interest rate than you are now. So, by maintaining your repayments at a higher level, you’re planning for the future. Also, any extra cash you can tip into your loan now will be incredibly beneficial in the long run.
What about those of us who have interest only loans?
Well I’d be thinking about starting to use the money you are saving on interest by applying it to the loan (or even leaving more in the 100% offset account that you might have set up!). If you are just spending what is being saved on lower interest payments, then you are missing out on a great opportunity!
The key point here is to take advantage of these rates and build your buffer!
Low interest rates look like they may last a while longer but they won’t last forever.
If you think you need some advice with your structuring, feel free to give me a call.