1300 672728
SO WHAT SHOULD YOU DO NOW?
The RBA wants you to do your bit for Australia and start spending, but is this the best thing for you? There are a few different things you can do.
Don’t do a thing.
If your home loan is variable, your existing lender should reduce the rate of interest you’re being charged and give you the option of reducing your repayments accordingly. The money you’re saving is what the RBA wants you to start putting into the economy to help give it the boost it needs. So, if you’re thinking of buying yourself something special, at least you can tell yourself you’re doing it for everyone.
Lock in a fixed rate
You can choose to fix all or part of your loan, and “lock in” a low interest rate. A fixed rate loan can provide security in terms of being able to budget cash flow. It can also provide protection when rates are rising. However, in the current climate of falling rates, it can be tricky to get the timing right. There are a few tools that can help, although there will always a degree of uncertainty when trying to predict the movement of interest rates.
Regardless of whether you get the timing ‘right’ (and you won’t know this until after the fixed period has ended), you need to make sure you select a fixed loan for the right reasons.
Start shopping around.
You’ve probably seen in the news that some lenders aren’t passing the full cuts onto their customers. If you’re not happy with your bank’s rate it’s a good time to shop around for a loan from a lender that has passed on all the rate drops. It’s important to review and compare your loan on a regular basis, so please get in touch to make a time to review your current situation.
Keep your repayments the same.
If you’re comfortable with what you’ve been used to paying, keep paying it. With your required repayments being lower, you’ll be paying off more of the principal with every payment. Not only will that reduce the amount your interest is charged on (reducing your required repayments even further), it means you’ll take months or years off your loan.
Save the money.
With rates this low, you’d have to think it’s inevitable they’ll go up one day. Rather than making extra payments you can choose to put the extra cash into savings to build a buffer for any future rises.
There are smarter ways than simply putting money into a basic savings account. Many loans have a redraw facility which lets you put extra payments into a loan, reducing the principal and interest, and allowing you to take out the extra money if and when you need it.
Or there is an offset account – a separate account that’s linked to your loan. Any money in this account will reduce the amount of the loan that interest is calculated on, but the funds are always available for your use if you want them. Even having your salary paid into an offset account will help reduce your interest charges for the time the money is in the account.
Pay off other debt.
Now is a great time to pay off that car loan or credit card that’s attracting higher interest rates than your home loan. Not only will you be reducing your debt, you’re also improving your financial position in the eyes of a lender, which is important if you’re thinking of refinancing or borrowing more to buy your next home.
Invest in a holiday.
Maybe your payments have forced you to sacrifice doing some of the things you’ve always wanted. Now might be a nice time to consider making a personal investment in some aeroplane tickets, and keep the RBA happy by keeping your travels in Australia.