Repayment warning in countdown to interest rate cut
Jacob Shteyman |
Mortgage holders are being urged to keep an eye on their repayments as the Reserve Bank of Australia’s prepares to hand down its cash rate decision.
With RBA Governor Michele Bullock widely expected to announce an interest rate drop for a third time in six months on Tuesday, the cumulative effect of 75 basis points of cuts could save the average borrower almost $300 a month in repayments since February.
But not all mortgage holders will be eligible for an automatic reduction.
Of the big four banks, only Westpac automatically lowers a customer’s payments if they have it set to the minimum.
CBA, NAB and ANZ customers must contact the bank if they want their direct debit amounts reduced.
Regardless of who they were with, Canstar data insights director Sally Tindall urged mortgage holders to weigh up what was best for them.
“For those managing to hold their budgets together, consider keeping your repayments exactly the same,” she said.
“Every rate cut is another opportunity to invest back into your mortgage and potentially be debt-free months, if not years early.”
If a mortgage holder who was sitting on a $600,000 loan in February kept their repayments steady, they would be paying $272 more per month in repayments than if they had lowered them to the minimum rate.
But it would also mean shaving off three years and three months off the length of their mortgage.
While money markets and the majority of economics expect the RBA to cut the cash rate to 3.6 per cent, the rates offered to consumers will still be substantially higher than the central bank’s benchmark figure.
The average variable rate for owner-occupiers would fall to 5.54 per cent, assuming a cut is delivered and lenders pass it on in full, Ms Tindall said.
But that shouldn’t stop customers shopping around for an even lower rate.
“Your mortgage rate is one number where you want to be aiming for well below average,” she said.
“After this next cash rate cut, ambitious owner-occupiers should be able to set themselves a stretch target of 5.25 per cent.”
AAP
