News of the latest mortgage rate cut is music to the ears of thousands of Australian home owners. But how can you really maximise the opportunity that has just presented itself?
Here are a few suggestions:
If you currently have a home loan, find out how your institution is going to react. Some (hopefully all) banks will pass on the full rate reduction to the consumer. If your institution doesn't, find one that does do the right thing and look into your options in regards to refinancing.
2. Look at a term deposit
You should investigate getting available cash into a term deposit sooner rather than later. The interest rates earnt for term deposits are likely to decrease conversely once an RBA rate decrease is passed on by the banks for personal lending products such as home loans and credit cards. If you have funds to invest in a term deposit you should look into doing something this week rather than next.
3. Keep an eye on fixed rates
Keep an eye on what fixed rates are doing in the market. You may find a pattern already emerging at the big banks and some of the second tier institutions, where the fixed rates are substantially lower than the standard variable rate. Even with a rate decrease, interest rates are still historically very high in terms of the past 12 years. There are some good offers currently in the market, particularly if you look beyond the big four banks. There are fixed rates on offer with some banks at the moment that are lower than the best discounted variable rates.
4. Act if borrowing capacity tight
A rate decrease can be advantageous for those with a tight borrowing capacity. If you are in this category, this is a prime opportunity to buy into the market as your purchasing power should increase with any rate decrease. This advice comes with a rider though; you must maintain a budget that allows at least some give when fluctuations reoccur.
5. Maintain repayments
Variable loan minimum repayments will come down with any rate decrease from your bank. Not only with home loans but also other personal financial products such as credit cards and personal loans. If you are handling repayments at your current variable rate why not maintain this repayment amount as rates move downwards allowing you to pay off more of the principle and pay off your home loan or personal debt sooner.
Robert Projeski is managing director of Australian Mortgage Options. Visit www.amohomeloans.com.au.
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