Reserve Cuts Interest Rate By 0.25% First Cut In 7 Years!

Reserve Cuts Interest Rate By 0.25% First Cut In 7 Years!

What a great start to spring!

Not only has the Reserve cut official interest rates for the first time in almost 7 years, but
· lenders are already gearing up to reduce their home loan rates by 0.25% or more and
· most economists are tipping another cut in the near future.

But you know what, I was thinking about how the cuts will be a welcome relief to most borrowers when it suddenly hit me that for a lot of you, you’ll never have had a reduction before and probably don’t know what happens now.

So first off, expect a letter from your lender in the next week or two. It will be just like the letters that you’ve been getting over the last couple of years but ‘hooray’ this one will be about rates going down.

But unlike when rates go up, most lenders do not actually reduce your repayments when interest rates come down.

So what to do?

Well if you can afford to keep paying at the old rate then you should do nothing.

Continuing to pay your loan off at the higher rate will reduce both how long it takes to pay off your loan and the amount of interest that you have to pay.

On a $300,000 loan over 30 years a reduction in interest rate of 0.25% is about $55 a month (depending on the exact interest rate you have).

Now let’s say you’ve had that loan for 5 years and your interest rate is now 8.75%. If you keep making the extra payment of $55 a month then you will take 1 year and 10 months off the loan term AND $AVE $38,125 in interest. Now that’s worth thinking about!

But I also know that with the way everything else is costing more these days, that for some of you any reductions in repayments will be a welcome relief.

So once you get your notification letter, contact your lender and request that they reduce your payments in line with the reduced interest rate.

So there you go. That’s what happens when rates go down. AND the best part is that this time you have a real choice about what to do.