Taking Advantage Of Low Interest Rates
As widely expected, the Reserve Bank of Australia kept the cash rate at 1.5 percent this month, for the 31st straight month. The RBA last moved in August 2016 when it cut it’s cash rate to the current 1.5 percent, a historic low.
As a result of slowed economic growth figures, many economists predict the Reserve Bank may reduce interest rates even further in the coming year; which would represent further record lows.
This low rate environment is an opportune time to review that you are getting the most out of your loans.
Have you considered the following?
- Fixed rate options. While rates are at an all-time low there may be opportunities to fix your loans. Explore your options. Some borrowers may wish to fix just a portion of their loan.
- Review your position. Low interest rates offer an opportunity to refinance or revise your payment schedule to pay your loan off sooner. Talk to your broker to see if there’s a home or business loan that better suits your needs.
- Debt reduction. With lower rates, your monthly/fortnightly repayments will be less. Rather than pocketing the difference, if you put the difference into extra repayments, you can shave years off your loan and, in doing so, save thousands in interest. For example, a $500,000 home loan at an interest rate of 7% requires repayments of $3,078 per month over 30 years. At 4.5%, the repayments are $2,533, a difference of $545 a month. If you put that $545 into extra repayments, you can potentially take more than 9 years off the home loan term and save almost $140,000 in interest.
- Create an offset account. This is effectively a money source sitting beside your mortgage. Any savings inside this account are effectively offset against your loan, which in turn reduces the amount of interest you pay.
Of course, low rates will not be around forever. As a borrower it’s important not to become complacent and to make sure that you still have the capacity to meet your repayment obligations in the event that rates increase.