CUA urges consumers to make the most of lower interest rates
Following the Reserve Bank of Australia’s action in dropping interest rates to the lowest level in fifty years, CUA (Credit Union Australia) is urging consumers to plan wisely what they will do with the savings brought about by the cuts.
CUA Acting CEO Rob Nicholls claimed the lower interest rates would give people more options with their money, particularly when it came to paying off loans or investing.
“It’s great that interest rates have dropped so far as it gives people more avenues to clear debt or invest,” he said. “But people need to remember that it’s just as important as any other time to be smart and plan ahead using the rate cuts to benefit themselves.
“For those on a variable home loan the rate cuts mean you have a bit extra in your pocket and it’s a good idea to use that money wisely to reduce high interest debt you might have such as credit card debt, store credit debt or personal loans.
“If you have freed yourself from those kinds of debt then you may consider just paying off more of your mortgage on a regular basis.
“The effects of doing this can be quite dramatic and can change your long term financial outlook significantly.
“For example, if you took out a variable rate home loan for $250,000 over a period of 30 years at the peak of the market, you’d have been paying around 9.42 percent interest per annum with repayments of $958.86 a fortnight.
“On the same loan today you might be paying more like 5.52 percent interest per annum with repayments of $654.03 a fortnight.
“However if you continue to make the higher fortnightly repayments of $958.86 at today’s interest rates, you could save yourself up to 15 years off your loan term and approximately $150,000 in interest, based on the interest rate remaining the same.
Mr Nicholls said another option was to put those extra savings into a mortgage offset account where your accumulated savings help to reduce the loan principal, allowing you to pay off your loan sooner.
“The effect of putting that extra money in an offset account is the same as putting it directly into your mortgage, except that it’s simple to start dipping into those savings when they’re in an offset account.
“It’s a bit more inconvenient to redraw extra funds that you’ve paid into your mortgage, so you are more likely to leave the money there,” he said.
Mr Nicholls said the interest rate cuts meant now was also a good time to consider investing in property.
“Despite the continual news bulletins about the economic downturn people should not feel the need to shy away from the property market.
“The Australian property market is still solid and poses a good long-term wealth strategy.
“If you are in a position to invest in housing now is an opportune time to do so while interest rates are low.
“The current market is an especially advantageous time for first home buyers as they have the opportunity to take advantage of the government’s first home owner grant which provides first home owners buying an established home with $14,000 and first home owners building a new home with $21,000.”
For financial advice call 133 cua (133 282) or visit www.cua.com.au.
