They say that you should make hay while the sun shines and that’s never been more applicable for Australian mortgage holders than it is now.
At the Reserve Bank’s April meeting the official cash rate was kept on hold at the historic low of just 1.5 per cent, making for a record breaking period of no interest rate movements up or down.
The RBA’s last interest rate movement was in August 2016 when they reduced the cash rate by 0.25 per cent.
April’s meeting made for the 18th consecutive board meeting where the RBA has not budged from its position. The previous record of 17 meetings occurred between February 1995 and July 1996 when the cash rate was at a much higher 7.5 per cent.
What mortgage holders should do?
With interest rates remaining at record lows and showing no signs of movement any time soon the best thing that borrowers can do is pay down their mortgages as quickly as they can.
Low interest rates make it easier to chip away at a loan’s principal amount, which will help reduce the amount of interest paid overall as well as the period needed to pay the loan off.
A few ways to pay off a loan faster:
- Make lump sum payments – Whenever you come into extra money, such as a tax return or bonus, consider putting it straight onto your home loan. This will help reduce your principal and see you paying less interest.
- Pay a higher rate than you need to – Put a little bit extra aside with each payment if you can afford to. It doesn’t matter whether it’s an extra $20 or $100 a month. Every little bit extra you pay now can have a ripple effect that could save you thousands in the long run.
- Pay more frequently –Those making monthly repayments should consider switching to fortnightly or even weekly payments. Most lenders set up monthly payments by default but do accept more frequent payments. Since interest is calculated daily, more frequent payments will help you save interest over the life of your loan.
- Negotiate a better rate – The less interest you pay, the easier it will be to make a dent in your home loan amount. It’s always worth a regular chat with your lender to see if they can get you a better deal that will help you own your home sooner.