Borrowers should be optimising record-low interest rates

Home loan customers have a golden opportunity after the RBA’s decision to slash the cash rate to a record low. Here’s what you must do now to smash your debt.

Home loan customers should be taking stock of their finances now.

• Mortgage war brewing as fixed rates hit record-new lows
• Big four banks reap millions by delaying interest rate cuts

Mortgage customers have been given a golden opportunity to smash down their debts.

And they should grab it with both hands.

Many savvy customers will soon be seeing their home loan interest rate start with a “2” in front after the latest rate drop is passed on by their banks.

It’s nuts really.

My new rate will be just 2.92 per cent.

The Reserve Bank of Australia’s decision to slash the cash rate this month will leave borrowers paying home loan rates they have never seen before.

And I know exactly what I’ll be doing with the extra rate cut from my bank.

I’ll be keeping my owner occupier repayments at the same level and watching my principal continue to creep down.

Sure, this can sometimes be disheartening to see your mortgage balance barely budge, but it’s a game of patience.

If you chip away and pay extra you reap the rewards.

The average home loan debt in Australian is $500,000, and the RBA’s decision to slash the cash rate will leave borrowers paying lower home loan rates.

I signed up to my first mortgage eight years ago, back when variable and fixed rates were typically around four to five per cent.

At the time I thought those rates were very competitive.

But fast forward to now and I watched my principal come down as rates have continued to fall.

Latest Australian Bureau of Statistics showed the average mortgage in Australia is now around $500,000.

But there’s many borrowers who have far bigger debts than this.

I have friends who have told me they have $1 million mortgages, a figure that makes my eyes water.

Servicing this amount of debt requires a big household income and hopefully a secure job in tow.

The retailers came out after this month’s rate cut urging shoppers to spend up their latest rate cut instead of using it to shave down their own debts.

And sure, I get it, we need people to spend to keep our economy ticking along.

But when rates are this ridiculously low I think the best thing many of us borrowers can do – including myself – is worry about our own state of affairs and smash down debt.

I had a colleague laugh at me the other day when I said ideally people shouldn’t have a mortgage once they hit 60 or closer to retirement.

That’s the goal in my mind.

And sure, this may well be easier said than done.

It all depends on your circumstances.

But entering those later years armed with a mortgage debt causes immense pressure.

At the very least borrowers should check what their home loan balance is and what rate they are paying.

If you’re an owner occupier paying principal and interest you should be chasing a rate as close to “3” per cent on the dot or under.

And if you are paying more than this you’re giving banks money for nothing.

If you can afford to pay extra off your loan now do it, because as they say rates won’t stay this low forever.
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@sophieelsworth