How to cut $40,000 and YEARS off your mortgage: Australian homeowners who ignore interest rate cuts could save a fortune
- Borrowing experts reveal how Australian mortgage holders can get ahead
- Those who take up interest rate cuts will see extra $100 a month in their pockets
- Save thousands in interest and years off loan by keeping up current repayments
Australian homeowners can get ahead and slash thousands off their mortgage debt by avoiding the temptation of declining interest rates cuts.
That's the message from borrowing experts after new analysis in the wake of two interest rate cuts in as many months by the Reserve Bank of Australia, a move not seen in more than a decade.
With the cash rate now at at a record low one per cent, many variable rate mortgage holders are set to save more than $100 a month, according to comparison website Finder.
Mortgage holders can own their home outright sooner by ignoring recent interest rate cuts (stock image)
But patience will pay off for homeowners who continue to keep up with their current mortgage repayments by slashing an average $40,213 in interest and three years off the life of their loan, based on the median Australian mortgage of $384,700.
Additional repayments now will reduce the risk of future mortgage stress when rates eventually rise again, according to Finder insights manager Graham Cooke.
'As borrowers are accustomed to that higher repayment amount, it won't cause them any extra pain for a lot of long-term gain,' Mr Cooke told domain.com.au.
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Home owners who don't take up interest rate cuts will save thousands in interest (stock image)
Mortgage holders will own their home outright sooner by ignoring interest rate cuts
Around one third of owner-occupiers are at least two years ahead of scheduled repayments, according to RBA research.
'The faster you pay down your principal debt, the less you would generally have to pay in interest on outstanding money,' Domain analyst Eliza Owen said.
But EY chief economist Jo Masters believes many households struggling with rising living costs would welcome reduced repayments.
'There is no right and wrong. It's balancing the benefit of repayments versus the stress of your cost of living versus your income,' Ms Masters said
Mr Cooke recently predicted another cut to interest rates could be on the way.
The RBA confirmed on Tuesday another cut could be possible.
Finder insights manager Graham Cooke (pictured) urged Australian mortgage holders to keep up current repayments to reap the rewards later on
'Frankly, two cuts might not be either, but it's a step in the right direction and it's great news for homeowners. It's two down and maybe one or two more to go,' Mr Cooke said earlier this month.
'On an average mortgage, if your bank passes on both rate cuts in full – that is a 50 basis point reduction – you could be saving almost $42,000 over 30 years.'
Prior to the recent cuts, the last time the RBA slashed interest rates in successive months in 2008 when it was slashed at five consecutive times from 7.25 per cent in August to 3.25 per cent in February the following year.
The average Australian mortgage of $384,700, according to the most recent ABS data
