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High times for low interest rates

With mortgage rates at their lowest since the days of black and white TVs, this might be the right time to make a serious dent in your home loan. 

 

 

Lower rates mean any money you have in the bank could be earning less interest. But if you have a variable home loan rate and your lender passes on the cut, you’ll pay off more of your loan faster just by keeping your payments the same. 

Upping your payments means you can really take advantage of lower rates, saving time and money on your mortgage. 

Adding an extra $50 a week can chop $50,000 from a loan of $400,000 - and pay off the loan four years earlier. 

When fifty bucks seems a lot

If fifty bucks sounds like a lot, even twenty can make a dent in your repayments over time, as long as interest rates stay low. 

That’s around one cup of coffee a day in a working week. 

Because interest on home loans is calculated daily, even chipping in small amounts can make a big difference over time. 

The table below shows how an extra $20 a week on a $300,000 loan takes over two years and $20,000 off. Further up the scale, an extra $100 a week slices off over three years and the best part of $100,000 over the life of the loan. 

Of course, we’re all different. Whether you’re willing or even able to make extra repayments depends on your circumstances. 

Good times, bad times

Depending on your situation and financial goals, a cut in interest rates may not be all good news. 

If you have a fixed rate, your mortgage payments are unaffected by the interest rate cut. 

If you’re unsure whether your loan is fixed or variable, now is a good time to check. If you’re on a fixed rate, you might talk to an expert to find out if there’s a better deal out there, or whether switching to a variable rate might work for you. 

Other things you could do

There’s more to low interest rates than your mortgage. 

For instance, you might instead choose to pay down bad debts such as your credit cards. Or use the money that you save on repayments to invest elsewhere to help grow your wealth. 

This could involve alternatives to cash such as buying shares or property. These carry their own pros and cons, so it’s a good idea to get advice so you understand the risks involved, and whether they are right for you. 

It all depends on your situation and financial goals. We can help you decide the best way to make the most of low interest rates. 


AMP
First published 28 August 2019

 

KTA Pty Ltd (ABN 19 008 141 080) trading as KTA Financial Services is an authorised representative of Charter Financial Planning Ltd ABN 35 002 976 294, Australian Financial Services Licence and Australian Credit Licence No. 234665. Registered address: Level 29, 50 Bridge Street, GPO Box 4134 Sydney NSW 2000.

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General Advice Warning: The information contained on this website is general in nature and provided in good faith. While the contents are obtained from various sources that are deemed reliable, it is not guaranteed as accurate or complete and should not be relied upon as such. It is recommended that you seek independent, professional advice before implementing any of the suggestions to ensure that it is appropriate to your needs and circumstances.