Should We Actually Pay Less After Interest Rate Cuts?

After nearly three long years, the cash rate has finally been cut. It’s only a matter of time before banks and lenders follow suit, and we see interest rate cuts on your home loan (If you’re a homeowner and haven’t already, contact us today to see if you can secure a more competitive rate.). Lower interest rates are great news for homebuyers and homeowners alike. With the cost of living currently high, many homeowners will be actively looking for a way to reduce their monthly mortgage repayments.

It makes complete sense. With interest rates coming down, the interest you pay on your home loan each month will also come down. When adding your principal repayment to the interest garnered against your loan, month-to-month repayments should be less.

It’s hard to imagine anyone finding high interest rates easy, however, if you’ve found the peak of interest rates challenging, but manageable, you may have a unique opportunity not everyone does: to continue paying the same amount.

Crazy, we know; Why pay the same amount when you have the chance to save? By continuing to pay the same amount now that rates are lower, you’ll be putting more money into principal repayments, potentially saving thousands in the long run.

How paying more on your home loan could save you thousands.

Making larger principal repayments has two effects.

It knocks more money off your home loan, meaning you’ll be mortgage-free sooner.

It reduces the amount on your home loan that garners interest, meaning as time goes on, you’ll be charged less in total.

Many homeowners with surplus funds use this strategy to take advantage of favourable market conditions. If you can healthily maintain your repayments while moving to a lower rate, you can slowly but surely reduce your loan term by a few years.

Even when rates go down, maintaining a consistent repayment helps set you up for success.

What if I’ve been struggling with my home loan?

If you’ve been struggling to meet repayments and even had anxiety about defaulting on your loan, you’re not alone. Many Australians have struggled with their home loans, extending the term of their home loan, and pausing repayments when offered by their lender. This in turn drags out the mortgage term, costing people many more years and thousands in mortgage debt. If this is the case for you, take the interest rate cuts as an opportunity to discuss refinancing to a lower repayment with your broker.

It’s important to talk to your local MoneyQuest mortgage broker, whether you’re looking to reduce your loan term or make your repayments more manageable, we’re here to help, with refinancing and repricing options. Reach out today.

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