The official cash rate in Australia is the lowest it’s been in 53-years. For Australian mortgage holders this means that the interest they are paying on their variable rate mortgage is lower, which is allowing them to pay more off their home loan principal.
For instance, the last interest rate cut in August of 2013 reduced the repayment on an average mortgage of $300,000 by $45 a month or $540 a year. Now, while this doesn’t sound like a huge saving, if you take into consideration previous interest rate cuts and also the reduction in the interest repaid over this time, then many Australians have saved thousands.
How Can You Make the Most of Low Interest Rates?
Smart money management and use will allow you to save yourself a great deal financially long-term if you make the most of the lowest interest rates in Australia’s history. At present, there are several options that you can elect to use so you can get ahead. These are as follows:
1.Pay More Off Your Mortgage
Rather than paying the minimum off your mortgage, pay more. This will allow you to reduce the term of your loan and also for you to possibly save thousands over the term of your loan. For example, paying an extra $45 per week on an average $300,000 home loan with a 25-year term at 4.75 percent, will save you $42,376.09 in interest and shave 4-years and 4-months from the loan term.
2. Don’t Alter Direct Debit Mortgage Repayments
If you have a direct debit mortgage repayment in place that is set at a certain amount, rather than changing this to your minimum repayment amount as it changes, leave it set at the higher rate. This way, you’ll pay more off your principal as your interest repayment is now less. For instance, let’s say you have a $300,000 mortgage, which was at 7.25 percent when interest rates were higher. At this time, your minimum repayments were $2,168.42 per month. However, rate reductions have now reduced your minimum repayments to $1,710.35 per month. But rather than reducing your repayments, you elect to continue paying the extra $458.07 per month on your mortgage. Over the term of your loan this extra repayment saves you $77,679.71 in interest and shaves 8-years and 3-months off the term of your loan.
3. Pay Off Debts
If you have credit cards or store cards that have a positive balance, then use the money that you are now saving on your mortgage repayments to clear-up this debt. This will then reduce the amount you are paying in interest and will also allow you to reduce your overall debt.
4. Open an Investment Account
If you’re seeking to buy an investment property or want to do home improvements, then an investment account that pays monthly interest could be a good option. This not only allows you to save for special projects, but it also gives you financial back-up should anything unexpected occur.
Are you looking for a cost effective home loan? Then look no further, contact eChoice and find the right home loan for YOU today.
Written by eChoice