How to benefit from low interest rates
With official cash rates at record lows, many people have asked how to benefit from low interest rates and how they can use them to get ahead with their home loan.
1. Over pay your mortgage
One quick way to benefit from low interest rates is to overpay your home loan. For example, you could pretend it is 2010 and interest rates are 6.5%p.a. and overpay your mortgage.
With the recent rate reduction it means just because interest rate decreased, doesn’t mean you need to drop your repayment amount.
Just putting an extra $50 on your home loan repayment every month can save you close to $14,000 in interest over the life of a standard loan (based on a loan of $300,000, 5% interest rate and 25 year loan term).
2. Fix your loan
You can lock in all or part of your loan for the long term so you can enjoy a low rate for years to come. A fixed loan provides security against the uncertainty of rate rises, keeping in mind that if rates go up by 1.0 per cent, your monthly repayment would increase by around $220 for a $350,000 30-year loan.
3. Use offset or redraw
The use of an offset or redraw facility on your home loan allows you to build a buffer against interest rate rises by providing a facility for you to place extra saved funds for a ‘rainy’ day.
With an offset account, you can earn interest on your savings, which is offset against the interest you’re paying on your loan.
Of course every person’s situation is different and this information has been prepared without considering your objectives, financial situation or needs, so before acting on the information, consider its appropriateness to your circumstances.
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