Great tips for making the most of lower interest rates

Great tips for making the most of lower interest rates

In this present climate of low interest rates, there are some great ways to maximise the impact of these low rates on your finances that will help support your financial growth.

COMPLETE A REVIEW OF YOUR present loan FACILITIES

In a low interest rate environment like at present it is easy to be complacent.

By thinking that you are already on the best deal.

Of course the amount of money you can save is relative to your current loan situation.  Someone with who has quite a substantial property portfolio, and therefore many loans, even with half a percent lower interest rate could impact on his portfolio of approximately $1 million dollars with a saving of around $5,000 a year.

For smaller valued portfolios the savings will obviously be less but even a saving of $100 a month could be the difference between you either putting that pool in or purchasing a new investment property to your portfolio.

The lenders are actively competing for your business and now is a great time to review your financial structures or contact Money Matters with Melody to do it for you – whether you objective is to access funds for investment or reducing your monthly repayments.

Often it’s not until you see it in black and white that you realise the need to review your current facilities and consider a change.

Set YOUR REPAYMENTS NOW AS IF RATES WERE HIGHER

If possible, you should set your repayments schedule at an assumed higher home loan rate.

To illustrate, using today’s market rates of anything between 3.8% and 4.5%, this would mean gearing your repayments at assumed rates of 6% or 7%.

Rates won’t stay this low forever and if you can afford to, paying more in repayments can help to either build a buffer or reduce your home loan liability and that builds your equity.

Here is an example; if you currently have a $400,000 home loan at 4.5% interest rate you would be paying about $2,100 a month or $480 a week.

If you set your repayments at a higher rate, such as 6% these repayments would be around $2,390 a month or $550 a week.

The impact of paying this additional amount of $70 per week is significant.

By setting your repayments at the 6% interest rate and paying the $550 a week instead of the standard $480 a week, you are going to save over $94,000 and 7.1 years on your $400,000 mortgage.

Now that’s a significant amount.

CREATE AN OFFSET ACCOUNT

Consider setting up an offset account.

Offset accounts are basically accounts that sit alongside your mortgage account and any savings you have in the offset accounts is included as a credit against your loan,  and in turn this reduces the amount of interest you pay.

The example below shows the impact of an offset account which has $10,000 sitting against a mortgage of $410,000 for the duration of the loan.

Paying interest only on the difference saves you over $24,000 in interest and over a year of the loan term.

Check to see if an offset is available to you in your current loan facility, if not it may be worthwhile to look at adding one.