5 ways to take advantage of falling interest rates

Posted on Friday, October 4, 2019 - 10:10

The Reserve Bank of Australia’s record low cash rate of 1.5% held for two years and seven months before dropping another 25 basis points in June 2019, and a further 25 in July. Now at 1% and many economists speculating further cuts, there’s never been a better time to take advantage of these falling interest rates. So, here are five ways to make the most of these historic lows.

1. Make extra repayments

When interest rates fall (and your bank is generous enough to pass on the full rate cut, fingers crossed) it’s time to inject more funds into your mortgage to pay it off sooner. There’s no better time to redirect funds from savings – even as little as $50 or $100 a fortnight – to paying off your mortgage. Increasing your repayments on an $800,000 mortgage at 3.25% by 100 can shave off two years and two months from your mortgage. 

2. Consolidate your high-interest debts

Consolidating higher interest debts such as credit cards and personal loans can also be a good idea when mortgage rates are this low. This can save you thousands – if not tens of thousands – in interest when paying off these small debts with your mortgage. Be sure there are no penalties involved before jumping into consolidation.

3. Refinance your home loan

Did your bank or lender skip over passing on the official rate cuts? There are no shortage of lenders that will – and a broker can help you find a better home loan refinance deal. “A home loan broker is there to find homeowners more favourable rates on mortgages,” says mortgage expert and Savvy CEO Bill Tsouvalas. “Instead of approaching banks one by one, a mortgage broker works with you to help find a deal that’ll have your mortgage paid off sooner, taking full advantage of mortgage rate cuts from the Reserve Bank.”

4. Borrow to fund an investment property

If you’ve been thinking of borrowing to invest, either through a top-up mortgage using your current home equity or through a refinance, lower interest rates are the best time to take advantage. Usually when cash rates fall, equity in your home goes up; which means borrowing from a much stable base compared with times in higher interest rates.

5. Restructure regular repayments

If you’re paying off your mortgage monthly, consider switching to fortnightly or weekly payments instead. Fortnightly payments schedules in two additional repayments per year compared with monthly; which means every extra repayment gets you closer to paying down the principal.

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