The Reserve Bank of Australia (RBA) announced consecutive rate cuts in June 2019 and July 2019, bringing the cash rate down from 1.5% to 1%*. Prior to this, the cash rate had been held steady at 1.5% unchanged for more than 2½ years. For many lenders, more specifically those sourcing wholesale funding within Australian shores, the cost of lending fell significantly overnight. The question is – if you are currently on a variable interest rate for your home loan, did your lender pass on the rate cut to you?
This means there is an opportunity right now in the market for you to potentially save substantially on your home loan. At Launch Finance, we have a system in place to ensure our clients regularly have their finances reviewed. Our brokers will assess both your current situation and the market to ensure you still have the right solution for your needs.
We often come across clients who are new to Launch and have not been reviewing their home loans regularly or at all. This in itself presents an opportunity to explore options and discover how much you could save in the current highly competitive market.
As a result of the recent RBA interest rate cut, the potential gap between the rate you are currently paying and how much you could be saving has further widened. It is now not simply a matter of ‘Have you reviewed your loan recently?’, it is also…
Did your lender pass on the rate cuts to you?
You may fall in to one of the following categories (assuming your loan(s) are on a variable rate):
a) You review your loan(s) regularly and are confident you are maximising your savings potential, your lender has also passed on the rate cuts to you;
b) You haven’t reviewed your loan(s) for some time however your lender has passed on the rate cuts to you;
c) You haven’t reviewed your loan(s) for some time and your lender hasn’t passed on the rate cuts to you; or
d) You review your loan(s) regularly and are confident you are maximising your savings potential however, your lender hasn’t passed on the rate cuts to you.
If you fall into category b, c or d, this is a great time to call your broker to find out how you can save! There is no obligation, it’s simply about reviewing your position to ensure you have the right finance solution for you.
How the rate cuts can help you save years off your home loan
If your lender has passed on the rate cuts to you and/or you have refinanced to a lower rate, this presents another opportunity. You are now in a position to knock years off your home loan by saving on interest payments. If you continue to pay the same monthly mortgage repayments as you did at the higher rate, you will be paying a higher percentage off your principal, which means you will pay your home loan off sooner.
A 0.5% rate reduction will save approximately $1,680 per annum or around $140 per month in interest on a $500,000 mortgage. If you maintain your existing loan repayment, the interest saving of $1,250 per annum will reduce the principal balance of your loan, meaning on average you could reduce your loan term by nearly 3 years. **
If you have not reviewed your loans recently, there may well be an opportunity for you to save! We are here to help, if you’d like have a chat about how you can benefit from the recent cash rate cuts, contact your broker today on (08) 9367 4222, [email protected] or fill out the form on this page.
* Note that the cash rate may have changed since this article’s date of publication.
** Calculations are based on a $500,000 loan, with a 4% pa interest rate reducing to a 3.5% pa interest rate over a 30-year loan term. Other fees and charges that may be applicable to your loan product have not been considered. This calculation is for illustrative purposes only and should not be considered professional advice for the purposes of entering into a financial arrangement.