With the latest round of interest rate cuts from the RBA to 2.25%, (which the lenders are expected to pass on to customers) home owners and property investors are reaping the benefits of interest rates being at all time lows in Australia.
Most experts seem to agree that rates will remain fairly stable for some time to come, and The Age Economics Editor says its possible there could even be further cuts. “It’s often said that interest rate cuts are like cockroaches. There is never just one of them,” Peter Martin told the Sydney Morning Herald. Martin also explained that with the current cuts, savings of $53 a month could be made on a typical $350,000 mortgage. This is excellent news for homeowners and property investors.
With this in mind, here are four strategies for making the most of low interest rates.
1. Make additional repayments
While interest rates are low, your repayments are also lower, which means that you should use the extra money that you would otherwise be spending on repayments when rates are higher, and put it straight back into your mortgage.
Paying more than the minimum amount when rates are low will help you pay off your mortgage faster because you’ll actually be paying off some of the principal too. This has two benefits: Firstly, you can pay off your loan more quickly, and secondly, you can reduce the amount of interest you pay overall too because the principal amount (on which interest is calculated) will be lower. However, you need to make sure that you have the type of loan that will allow you to make extra repayments without incurring penalities. Check the fine print of your loan or ask your Broker or Mortgage Manager to look into it for you.
2. Fix your interest
Fixing a low interest rate is not the perfect strategy for everyone, but some people like the certainty of being able to lock in a low rate, even if it’s just for a few years. If you’re considering this option, now is a good time to investigate. Your mortgage broker or Mortgage Manager can assist you to find a deal that fits in with your overall financial strategy and long term goals.
3. Borrow a bit more
If you are dreaming of an extra bedroom, a swimming pool or some landscaping, but need an injection of cash to make it happen, then now is a good time to approach your lender about borrowing additional funds. Most lenders are open to the idea of people borrowing a bit more, provided they can afford the repayments and the value of your property adequately supports an increase. Get some quotes and then talk to your lender or your mortgage Broker or Mortgage Manager about securing some money to complete the project.
4. Make an investment
If you’ve been considering purchasing an investment property, an ideal time to get into the market is when interest rates are low. A Broker can help you find the best investment loan for your needs. Make sure any investment loan is properly structured to maximise your tax benefit.
For more information, talk to us at Austral Mortgage.