Mortgage customers are paying down their debt as quickly as possible to get ahead
The Reserve Bank of Australia board has kept the cash rate on hold at one per cent today as borrowers choose to pay down their loans. WHAT YOU MUST DO NEXT
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Mortgage customers are making massive inroads into their loans and optimising record-low interest rates.
Reserve Bank of Australia governor Philip Lowe kept the cash rate on hold today at 1 per cent however economists expect he will cut rates again before the year’s end.
The RBA board announced consecutive cash rate cuts in June and July and concerns remain around global economic tensions which has eroded confidence in the Australian economy.
But borrowers have been urged to pump extra into their mortgages while rates are at rock-bottom levels, helping them shave down the principal at a faster rate.
Latest statistics from the nation’s largest bank, the Commonwealth Bank, found 77 per cent of customers are ahead on their loans.
And those who are in front are, on average, 35 monthly payments ahead of their scheduled repayments.
Fellow big bank National Australia Bank’s data shows 66 per cent of customers are at least one month ahead of their repayments.
On average, NAB customers are 38 months ahead of their repayments, including cash held in offset accounts linked to their loans.
The Reserve Bank of Australia board meets again tomorrow and it’s expected to keep the cash rate on hold at 1 per cent.
The Commonwealth Bank’s executive general manager of home buying, Dan Huggins, urged customers with variable rate loans to pay down more if possible.
He said it could “help them save interest and pay off their home loan quicker”.
“Customers on a variable rate are able to make additional payments over and above their minimum required repayment amount at any time,” he said.
Mr Huggins said CBA customers on a fixed-rate deal could make extra repayments of up to $10,000 per year without incurring any fees.
Borrowers with a $300,000 30-year variable loan paying an extra $100 a week could save around $68,000 in interest charges over the life of their loan.
They could also be mortgage-free 10 years sooner.
This could be done by upping their initial monthly repayments from $1347 to $1747.
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NAB’s chief customer officer of consumer banking, Mike Baird, said borrowers should be optimising cheap mortgage deals by paying extra or tipping more cash into their offset account if they had one.
“Now is a great time to enter the housing market, or get ahead on loan repayments, with interest rates at record lows,” he said.
RBA governor Philip Lowe made consecutive cash rate cuts in June and July and has previously indicated interest rates would stay low for some time yet.
This has also made variable loans far more appealing — latest Australian Bureau of Statistics data found of all new mortgages issued in June, 16.3 per cent were fixed rate loans.
Rewind back to the GFC in 2007-18 and the portion of fixed rates loans was at its peak of about 25 per cent.
Originally published as Mortgage customers are paying down their debt as quickly as possible to get ahead
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