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Two consecutive rate cuts and what it means for you

The RBA’s December rate cut of 25 basis points is the first consecutive rate cut since 2009. If you have a home loan, keep a close eye on you lender to see if they pass on the reduction.


Current mortgage holders

The RBA's December rate cut of 25 basis points is the first consecutive rate cut since 2009. If you have a home loan, keep a close eye on you lender to see if they pass on the reduction.

While the November rate cut was passed on quickly by the big four banks, this time around we've yet to hear any rate movements from the majors [this is true at the time of publication (11AM AEST Dec 8 2011). Major lenders have since then announced rate cuts].

Some smaller lenders have promptly passed on the cut in full, but it's important to look at how the final interest rate compares (some of these lenders may have a higher rate to start with).

The important thing is to keep an open mind and be prepared to explore your options if you're not happy with your lender's decision. A qualified mortgage broker can help you compare different loan products from their panel of lenders – not just the major banks but smaller lenders as well.

With further possible rate cuts forecasted for 2012, this may be a great opportunity to pay off your mortgage sooner by using the savings from the reduced interest rates as additional loan repayments, without making significant changes to your current budget and level of spending.

For example, on a $300,000 loan with a 30-year term, maintaining the same level of repayment after the rate has been cut form 7.25% to 7% means you repay an extra $50 per month – saving you $38,000 in interest and 2 years off your mortgage in the long term.

Prospective buyers

If you've been waiting on the sidelines, now might be a good time to enter the property market, as interest rates and property prices are both down.

And when it comes to finding a suitable home loan, it may be worthwhile looking beyond the big four banks and take the smaller lenders into account as well. It's worth noting that while the banks dominate the home loan market, the growth rate of mutuals are higher than those of the big four banks due to their lower variable rates and benefits such as nil ongoing monthly fees . Customer satisfaction surveys also reveal that mutuals score highly due to their smaller customer base.

Useful Links:
Extra repayments calculator:
/calculators/extra-repayments-calculator.aspx

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