Laura Akhurst - 31 Mar, 2014

Take Advantage of Record Low Interest Rates

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Glenn Stevens, Reserve Bank of Australia (RBA) Governor is suggesting that the cash rate will remain at 2.5 percent for some time. This says Stevens will increase stability in the Australian economy.

For many home loan holders, this news means that they can possibly take advantage of low interest rates that may reduce their monthly costs. Let’s look at the ways you can possibly do this over the coming months.

How You Can Take Advantage of Low Interest Rates

1. Wealth Building – If you’re a retiree or pre-retiree who is looking to build wealth, then you can use low interest rates to your advantage. Lower interest rates reduce capital costs. These savings mean that you can then increase your debt repayments, if you wish to, so that you reduce your principal and increase your equity. This, in turn, allows you to build wealth faster. It also means that you have more bargaining power with your lender, if you wish to take out additional loans in the future, as you’ve accumulated more assets.

2. Home Loan Competition – The current cash rate is the lowest it’s been in more than 50-years. The cash rate is the rate that lenders borrow money at to fund home loans. The lender then adds their percentage to this so that they make a profit when someone borrows money from them. This means a home loan at 4.94 percent earns a return of 2.44 percent for a lender when the cash rate is set at 2.5 percent.

Therefore, lenders who are offering cheaper home loan rates are typically making less of a profit. But, many are working on the grounds that by offering lower rates they’ll write up more home loans and make a greater profit due to volume. This type of interest rate market then generates greater competition amongst lenders because they are seeking to secure you as a customer.

So before you take out a home loan, shop around for the best possible interest rate. Look at what all lender’s have to offer. Compare fees, service and home loan features. And remember that a saving of a percent can reduce the amount of interest that you pay back to your lender by thousands of dollars.

3. Ask About Comparison Rates – When looking at home loans always ask a lender about their comparison rate. As this is a legal obligation and formula that gives you the true cost of your home loan over the term of your loan. This then allows you to compare home loans accurately.

4. Refinancing – If you’re looking to switch to a home loan with a lower interest rate, you can save thousands. But, you need to do your homework before making any move. Always work out break costs and exit fees from your existing home loan and then work out the costs of your new home loan. Calculate how much you’ll save, and if you can get better deals always shop around.

Want to know more about how you can take advantage of the low interest rates? Contact eChoice to see if we can save you more.

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