Official cash rates are the lowest we’ve seen in many years, meaning it’s a great time to get ahead on your home loan. But how?
Make additional repayments
Just because the interest rates have fallen, it doesn’t mean you need to lower your repayment amount. If you keep your repayment the same as it was before the interest rate drop, you’ll end up making additional payments to your loan. If you do this for an extended period of time, you’ll end up saving interest over the life of the loan and possibly pay your home loan off sooner.
Make the most of your offset account
A 100% offset account can help you reduce the interest you incur on your home loan. Any savings you have in the account ‘offset’ what you owe on the loan.
For example, if your home loan is $300,000 and you have $20,000 savings in your 100% offset account, you will only be charged interest on the net amount you owe – i.e. $280,000.
If you have lowered your repayments with the rate drop, you should now be able to contribute more cash towards your offset account. As this cash reserve grows, it will help to further reduce the interest costs associated with your home loan.
Secure an attractive fixed rate loan
You can choose to fix all or part of your loan, and “lock in” a low interest rate. A fixed rate loan can provide security in terms of being able to budget cash flow. It can also provide protection when rates are rising. However, in the current climate of falling rates, it can be tricky to get the timing right. There are a few tools that can help, although there will always a degree of uncertainty when trying to predict the movement of interest rates.
Regardless of whether you get the timing ‘right’ (and you won’t know this until after the fixed period has ended), you need to make sure you select a fixed loan for the right reasons.
It’s never been a better time to get ahead on your mortgage, and/or ramp up your savings. It just requires a little knowledge on how best to do that given your current loan structure and a little discipline when it comes to managing your money.