Debt reduction the best strategy following rate cut

Smartline Personal Mortgage Advisers said the latest decision by the Reserve Bank to further reduce the cash rate reinforces the advantages of this strategy, rather than improved household cash flow.

“Record-low rates tend to focus our intention on the obvious opportunities associated with cheap finance. However, they actually present us all with an amazingly powerful opportunity to reduce our debts faster,” Smartline executive director Joe Sirianni said.

Mr Sirianni noted that debt reduction is a worthy strategy for those with a mortgage on their owner-occupier home.

“Paying down debt that does not offer you a tax deduction on the interest expense is always going to be worthwhile,” he said.

“Foregoing the higher household cash-flow benefit now provides major long-term financial benefits that every home owner would appreciate – taking years off your mortgage term and saving hundreds of thousands of dollars in interest.”

According to Mr Sirianni, every borrower would be well advised to make the most of the low rates while they can.

“This current interest rate situation may last for quite a while, but it may also be short-lived,” he said.

“The truth is, no one knows how long we are going to enjoy these rates.”

Written by Reporter

Last Updated: 07 October 2022

Published: 19 May 2015