Aussies 'should not reduce home loan payments after rate cut'

Friday 09 September 2011

Article by Mozo

If the Reserve Bank of Australia (RBA) opts to reduce interest rates in the coming months, Aussies should resist the urge to cut back on their home loan repayments, according to one lender.

Rate cut 'should not tempt Aussies to opt for lower home loan repayments'

Resi Mortgage Corporation told the Australian Associated Press that even if the cash rate was only dropped by 25 basis points, those who carry on paying at the current level could reduce the time it takes them to pay back their home loans by up to five-and-a-half years.

"If you can re-direct this money back into your loan, the cumulative financial effect over the long term can be significant," the expert stated.

Lisa Montgomery, chief executive of the firm, added that it may also be worth switching to a fortnightly repayment plan to reduce the time it takes to pay off a mortgage.

The RBA announced on Tuesday (September 6th) that the cash rate would remain unchanged at 4.75 per cent. The last time the central bank reduced interest rates was in April 2009 when it was dropped to three per cent.

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