You might be forgiven for thinking banks had been making the most of Black Friday Sales with the recent slashing of interest rates. Some rates are the lowest they’ve been since the Second World War—e.g. 3.95 per cent, which is unprecedented even in a competitive market.
How can you use the low-interest rates to your advantage?
Extra-low rates can be tempting. If you currently own a home and have a mortgage that’s due to be refixed the timing couldn’t be better. If your interest rate is about to drop, we suggest you try and keep your repayments the same (to pay more principal), or even slightly increase your repayments to get mortgage free quicker—if you can.
If you don’t have a refix on the horizon, talk to a mortgage broker before making any moves. You might lose money if you were to break your loan or move banks. If you’re due to refix in the shorter term (over two to three months), it might be worth breaking now—but the same advice applies. Try and keep your repayments the same (or higher) and talk to a mortgage broker first.
I’m just about to buy my first home—how can these low rates help me?
Always crunch the numbers with a view to meeting repayments at 6 or even 7 per cent, because rates can rise, and you don’t want to be caught out. Banks will often do the same in their assessment. There is always devil in the detail.
If you’re a buyer with a lower deposit, these low rates may be out of your reach. If you are able to access the lower rates consider setting the repayments at 6 per cent—not only are you hitting more principal from the start, you have room to move if rates are to rise.
There’s no question that a one-year rate of 3.95 per cent is tempting. But putting all of your eggs in one basket may not be the best choice for you. A more spread out structure—splitting your mortgage over one-, two- and three-year rates to cushion volatility— might be better in the long-term.
Contact us to discuss your options.