Households are paying off their home loans sooner

Published: February 20, 2009 - 10:59 AM

People are making the most of lower interest rates

The Sydney Morning Herald has reported that households are making the most of lower interest rates by paying off their home loans sooner, rather than reduce their monthly payments.

This has lead to some economists to request banks to automatically reduce monthly home loan repayments when rates are reduced to put more money back into homeowner’s pockets.

Banks usually keep automatic payments unchanged after an interest rate reduction with some then offering their customers the opportunity to reduce their monthly payments if they wish. However many mortgagees are unaware that if interest rates go down, they do have the opportunity to reduce their monthly home loan repayments.

Minutes from the February 3rd Reserve Bank board meeting reveal that board members thought that "households had not as yet scaled back their loan repayments after recent falls in interest rates, preferring instead to pay off debt faster".

Australia's major credit score provider Veda Advantage corroborates the views of Reserve Bank board that consumers are becoming wary of taking on debt. Veda Advantage figures show there were 150,000 fewer credit enquiries for personal loans and credit cards in the last three months of 2008 compared with the same period in 2007.

Alison Walter of ShopAround.com.au said that with interest rates dropping it’s a great time to try and maintain your monthly payment amount to reduce the size of your home loan.

"If homeowners are able to keep their mortgage repayments unchanged as interest rates fail, then they're saving themselves tens of thousands over the life of the home loan," she said. She also added “There are many great value fixed rate mortgages available. Anyone can take just 5 minutes to compare mortgages and home loans available using ShopAround.com.au - no obligation and it's free to use!"

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