One could almost hear the collective sigh of relief through the nation when the Reserve Bank finally lowered the interest rates! Even if it is only by 0.25% so far, at least it is a starting move in the right direction.
By now that decrease should have flowed through to your bank’s variable rate loan. Have you checked yours?
I know this is an old drum beat, but so many people do not check their rates. As a starting guide, if you are a quality borrower you should definitely be on a rate less than 6% for your home loan, with many banks below that mark.
If you are paying too much, then you should call your bank or broker and query why. If you are not satisfied with the answer, call me.
The most asked question I have had this last month:
Our bank has not yet passed on any rate cuts and we were wondering whether they will?
For the benefit of all:
Whilst major banks will headline announcements of their rate reductions, the effective date is never immediate. They will always state a future date from which the reduction applies in the small print. The smaller banks will follow similarly without the media headlines.
Note that your rate reduction will not necessarily automatically reduce your monthly repayments – at most banks the minimum required monthly repayment will decrease, but the actual amount paid will remain as previous.
In effect, if you leave the repayment that way, it will mean you are paying a little extra off your loan each month to reduce the debt faster.
Bank computer systems will have adjusted what your new minimum repayment is by now. You will be able to see that calculation in your net banking. If you want to adjust the monthly repayment down, you will be able to do so direct at the bank.
If cash flow is most important to you, then making that repayment adjustment will be beneficial. However, leaving the repayment a little higher will be more beneficial to you in the long run, assisting in paying off that mortgage.
Lower rate plus higher repayment equals owning your own home faster!