Since October 2011, the Reserve Bank of Australia has slashed interest rates by 150 basis points. Based on your average $300,000, 30 year home loan at 6.10%, this has seen families save around $300 per month on their repayments. But should families be pocketing the savings or keep paying their original repayments?
If families continued to pay their original repayments from October 2011, they would save more than $100,000 in interest payments and 8 years on their mortgage. Even if they were to pay just $50 per month on top of what their minimum payments are currently, they would save more than $30,000 and almost 2 years on their mortgage. There are significant long-term savings for families that can afford to ignore interest rate cuts and continue with their existing level of repayments.
With recent job cuts in Australia, many families are unable to continue with their existing repayments and count each interest rate cuts as a blessing. Some may have no choice but to spend the money on mounting bills or putting food on the table.