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5 ways to take advantage of falling interest rates

Published on June 13th, 2020
  Written by 
Savvy Editorial Team
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Take advantage of falling interest rates

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The Reserve Bank of Australia’s record low cash rate of 1.5% held for two years and seven months before dropping another 25 basis points in June 2019, and a further 25 in July. Now at 1% and many economists speculating further cuts, there’s never been a better time to take advantage of these falling interest rates. So, here are five ways to make the most of these historic lows.

1. Make extra repayments

When interest rates fall (and your bank is generous enough to pass on the full rate cut, fingers crossed) it’s time to inject more funds into your mortgage to pay it off sooner. There’s no better time to redirect funds from savings – even as little as $50 or $100 a fortnight – to paying off your mortgage. Increasing your repayments on an $800,000 mortgage at 3.25% by 100 can shave off two years and two months from your mortgage. 

2. Consolidate your high-interest debts

Consolidating higher interest debts such as credit cards and personal loans can also be a good idea when mortgage rates are this low. This can save you thousands – if not tens of thousands – in interest when paying off these small debts with your mortgage. Be sure there are no penalties involved before jumping into consolidation.

3. Refinance your home loan

Did your bank or lender skip over passing on the official rate cuts? There are no shortage of lenders that will – and a broker can help you find a better home loan refinance deal. “A home loan broker is there to find homeowners more favourable rates on mortgages,” says mortgage expert and Savvy CEO Bill Tsouvalas. “Instead of approaching banks one by one, a mortgage broker works with you to help find a deal that’ll have your mortgage paid off sooner, taking full advantage of mortgage rate cuts from the Reserve Bank.”

4. Borrow to fund an investment property

If you’ve been thinking of borrowing to invest, either through a top-up mortgage using your current home equity or through a refinance, lower interest rates are the best time to take advantage. Usually when cash rates fall, equity in your home goes up; which means borrowing from a much stable base compared with times in higher interest rates.

5. Restructure regular repayments

If you’re paying off your mortgage monthly, consider switching to fortnightly or weekly payments instead. Fortnightly payments schedules in two additional repayments per year compared with monthly; which means every extra repayment gets you closer to paying down the principal.

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This guide provides general information and does not consider your individual needs, finances or objectives. We do not make any recommendation or suggestion about which product is best for you based on your specific situation and we do not compare all companies in the market, or all products offered by all companies. It’s always important to consider whether professional financial, legal or taxation advice is appropriate for you before choosing or purchasing a financial product.

The content on our website is produced by experts in the field of finance and reviewed as part of our editorial guidelines. We endeavour to keep all information across our site updated with accurate information.

Approval for home loans is always subject to our lender’s terms, conditions and qualification criteria. Lenders will undertake a credit check in line with responsible lending obligations to help determine whether you’re in a position to take on the loan you’re applying for.

The interest rate, comparison rate, fees and monthly repayments will depend on factors specific to your profile, such as your financial situation, as well as others, such as the loan’s size and your chosen repayment term. Costs such as broker fees, redraw fees or early repayment fees, and cost savings such as fee waivers, aren’t included in the comparison rate but may influence the cost of the loan. Different terms, fees or other loan amounts may result in a different comparison rate.

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