Home loan rate cuts to deliver big savings to borrowers
Home loan customers could save thousands in interest and shave years off their mortgages if the cash rate is dropped to a record low tomorrow. FIND OUT HOW MUCH YOU COULD SAVE
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Home loan customers could be enjoying average savings of about $43 per month if the cash rate is dropped to a record-low on Tuesday.
The Reserve Bank board is strongly tipped to lower the cash rate to just 0.75 percentage points which would free up more cash for those paying off their home loans.
Latest data from financial comparison website RateCity found on a $300,000 30-year loan if the average variable rate of 3.91 per cent drops by 0.25 percentage points to 3.66 per cent, borrowers would save $43 in interest charges or more than $500 a year.
And on a $500,000 it would result in savings of $71 per month or about $840 annually.
Mortgage broking firm Finsure’s managing director, John Kolenda, urged borrowers to focus on paying down their mortgages if a cut happens, instead of pocketing any extra cash themselves and spending it.
“Leave your repayments as they are and they will be contributing more off paying down the principal,” he said.
“This means borrowers will pay off their loan sooner and save thousands of dollars in interest charges over the life of the loan.”
And economists say it won’t be the last of the rates cuts — some expect an additional rate cut either later this year or in the first half of 2020.
But all eyes will be on the big four banks and whether the pass on any cuts in full, or only pass on some to those paying off loans.
Just last week RBA governor Dr Lowe delivered a speech and highlighted that the state of the global economy meant the board could not wait to cut interest rates if central banks globally cut their rates.
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Tribeca Financial’s chief executive officer Ryan Watson urged borrowers to take advantage of the rock-bottom rates to wipe their debt at a faster pace.
“For borrowers who are repaying principal and interest debt, with these record-low interest rates a lot more of their repayments are going into decreasing their borrowings, as opposed to servicing interest,” he said.
“One thing to keep in mind, make sure your bank passes on the full interest rate decrease. “And if they don’t, be sure to contact them and push for further interest rate decrease.”
The RBA has already cut the cash rate twice this year in June and July.
Of the big four banks the Commonwealth Bank and National Australia Bank passed on 0.44 percentage points of the 0.5 percentage point cuts, while ANZ passed on 0.43 percentage points.
Westpac was the stingiest and only passed on 0.4 percentage points.
But those continued to be hit hard will be savings, with many interest rates on accounts as low as 1 or 2 per cent.
Originally published as Home loan rate cuts to deliver big savings to borrowers