Finance News

High times for low interest rates

With mortgage rates at their lowest since the days of black and white TV, 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.

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.

General Advice Disclosure: This document contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. If you decide to purchase or vary a financial product, your financial adviser, AMP Financial Planning and other companies within the AMP Group may receive fees and other benefits. The fees will be a dollar amount and/or a percentage of either the premium you pay or the value of your investment. Please contact us if you want more information.

ASCK Pty Ltd (ACN 105 450 566), trading as AMEGA Financial Solutions is an Authorised Representative and Credit Representative of AMP Financial Planning Pty Limited Australian Financial Services Licensee and Australian Credit Licensee 232 706. General advice warning: This website contains general information only. It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances.

Financial Services and Credit Guide