Rate cuts save home owners $90k

According to the brokerage, a series of interest rate cuts since May 2012 has seen the official cash rate reduce by 1.25 per cent, with banks passing on about 1 per cent of this.

If a borrower had a 30-year, $300,000 home loan at 7 per cent in May last year, they would now probably be paying around 6 per cent.

That cuts the required monthly repayment from $1,995 per month to $1,798 per month.

However, if the borrower maintained their repayments at $1,995, they could potentially save more than $90,000 in interest and take six years and nine months off their home loan.

While this assumes that the interest rate stays at 6 per cent for the life of the loan, which isn’t likely, it does illustrate the power of making extra repayments for a home loan, whatever the interest rate may be, Smartline’s executive director Joe Sirianni said.

“If you’ve been used to making those repayments at that higher rate, it should then be reasonably painless to continue to keep them at that same level,” he said.

“Chances are most people won’t even miss the money and the benefits of not touching that money now for a major long-term benefit should outweigh any pain.

“You’re effectively giving yourself $90,000 of future lifestyle – money you can use to do something significant for you and your family.

“That’s a significant amount of money for pretty well everyone I know.”