If you have a variable rate home loan, you might already be enjoying lower loan repayments as a result of recent rate cuts. (If you’re not sure how your lender responded to the August RBA announcement, you can find out here.)
The reduced rates became effective for most lenders by the middle of August, but there were some who only officially lowered their rates over the last few days. If your next statement doesn’t reflect a reduction in the rate, you may need to investigate!
We’ve said it before, but it’s worth repeating again.
If you are keen to save some money and get ahead on your home loan, now is the perfect time to do so.
Every time the rate (and your minimum repayment) falls, you are presented with an opportunity. An opportunity to own more of your home and in the process provide flexibility and more options over the long term.
It’s up to you whether you decide to take it.
The temptation we all face is to simply make the new lower loan repayment and spend the difference between what we pay from now on and what we were paying before repayments fell. After all, who doesn’t want to be able to eat out more, hit the shops and live a little larger? It sounds much more appealing than making additional payments towards something you can’t even see.
If we look at the rate reductions announced by the majors and take the average to be a reduction of 12 basis points, on a $500,000 30 year home loan making variable P&I repayments, your minimum monthly repayments will fall by approximately $37. This doesn’t seem quite enough to enjoy living the high life! But, if you pay this amount into your loan or offset as an additional monthly payment instead, you can potentially save $15,000 over the life of the loan.
The thing is, it’s not really about paying an additional $37 into your loan every month for 30 years.
It’s about understanding the longer term effect of the seemingly small decisions you make today.
It’s about fully grasping the idea that big things are accomplished by small steps.
And it’s about what you choose to do with the money you have, not how much you actually earn.
What will you be doing with your $37?
