1. How does interest rate affect your mortgage?
Many Australians are excited by the latest rate cut; they are saving an average of $625 PA on a
$250,000 loan. What is the effect of this rate cut on your Home Loan? Does it mean that you can
now pay your home loan faster? Does it allow you to have better cash flow?
In this article we’ll answer your questions and show you how does interest rate affect your
mortgage?
Interest is compounding and as your mortgage is generally over 25 or 30 years and any ongoing
savings regardless how minor it looks will have dramatic outcome on it. Especially in the first 5
years.
When interest rate drops many Home Owners are excited by the idea that they now have few
hundred dollars more to spend every month or year. And usually the more you earn the more you
spend or in this case the more you have left over at the end of each month the more you spend.
So as Interest rate drops you reduce your monthly repayments to allow you to spend the extra
dollars. And in doing so interest rate cut will not have any impact on the life of your loan or the
cost of your loan over the 25 or 30 year term.
To take full advantage of the rate cut you need to have a good loan structure, very detailed
budget and cash flow plan. So then regardless of your interest rate your cash flow is working for
you and assisting you in paying off your home loan faster allowing you to save thousands of
dollars.
Your home loan structure needs to allow you to more effectively use your cash flow. And
reducing your monthly repayments or reducing your interest rate will then allow you to reduce
interest cost much quicker. With this strategy you are not dependent on the reserve bank and are
not just relying on interest rate as interest rate is a variable and is fluctuating and cannot be
dependent on.
In summary and going back to the questions above, you can have a better cash flow and pay off your
home loan faster with the latest interest rate cut if you have a good loan structure, a budgeting plan and a
debt management program. You can have the best of both worlds. Better cash flow and pay off your home
loan faster.
However if you do not have a debt management program and you are only relying on interest rate, your
cash flow will not improve as a result of interest rate cut; as the odds are you’ll increase your spending
with the same amount or more. You will not be able to save on your interest costs as you’ve reduced your
monthly repayment and more importantly your loan cost is the same over the term of your mortgage.
The answer is simple, you need to have a mortgage plan and in that you need to consult with a mortgage
planner, invest in getting a professional advice to take full advantage of the latest rate cut and this can
save you hundreds of thousands of dollars.
http://www.fastrepayhomeloan.com.au