A new Finder analysis shows that home owners with an average variable mortgage who keep paying the same repayments as before the last rate cut could shave $40,000 and three years off their loan.
“If lenders were to pass on the full 50 basis point discount of the two rate cuts, in other words move a borrower’s rate from 4.91 per cent to 4.41 per cent, the new monthly payment could be $2,005.
“However, if borrowers paid that extra $120 a month toward their loan, they’d be saving $40,300 in interest 39 months (three years and three months) off their loan term,” stated Finder.
Graham Cooke, insights manager at Finder, urged borrowers to use the lower rates as a way to get in front on their debt.
“If borrowers are accustomed to that higher repayment amount, it won’t cause them any extra pain for a lot of long-term gain,” said Mr Cooke.
“If you can make additional repayments now, you’ll reduce the chances of mortgage stress if and when rates eventually do go back up,” he said.
“Mortgage debt is a major responsibility and there’s never been a better opportunity to get on top of it.
“If you truly want to feel the effect of these payments, make this a habit and not just a once off contribution,” continued Mr Cooke.
Cameron Micallef is a journalist at Nest Egg, writing primarily about personal wealth and economic markets.
Prior to this, Cameron worked for Australian Associated Press. He graduated from the University of Wollongong with a double degree in communications and commerce.