The rates have gone down, WHAT HAPPENS NEXT?
Lenders will announce that they have dropped their home loan interest rates, but in the fine print they advise what dates the rates are dropping from. Some will drop their rates for new borrowers faster or sooner than for existing borrowers. Some will be days plenty will be weeks.
For existing borrowers, the repayment amount generally won’t change until the end of the month following the rate reduction. This is because we pay our home loans “in arrears”. So don’t think the lower repayment will start with the next repayment as a general rule.
Just to confuse things, some lenders will automatically reduce your loan repayment to the new lower amount, or some will just leave the repayment amount the same and let you pay extra. No right or wrong answer.
If you need the extra cash flow, then take the lower repayment if it is offered or ask your lender to reduce the repayment to the minimum.
If cash flow isn’t an issue, then I suggest leaving the repayment the same and paying off the home loan faster. You can generally always access the extra if you need it via redraw.
The other consideration if your cashflow is ok, is to take the lower repayment option on the home loan and pay extra into any high interest rate debts like credit cards, car loans, zippay etc. Pay them off faster and then put those repayments into your home loan.
Subject to obtaining independent financial advice, you may also wish to reduce the home loan repayment to the minimum and pay the extra into your superannuation for retirement. Seek financial advice to make sure this is the best option for you, as once the money is in superannuation, you can’t get it out until retirement.