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Empower Wealth Blog post by Empower Wealth

Repayment Changes

With the RBA decreases in interest rates late last year and the recent lender increases it’s hard to know exactly what your repayment should be each month when it comes to your mortgage. Furthermore there are some lenders who when rates are reduced do not adjust your repayment levels so you don’t know where you stand and it’s easy to feel as if you aren’t getting anywhere in paying down your loan.

It’s a little technical as to why they do this but lenders policies usually state: Lenders will only review your loan on the loan anniversary date and will only increase a repayment if the current repayment is not enough to pay the loan off in the remaining term of your loan contract.

So here are some useful tips:

 

Decrease in your Mortgage Interest Rate – Variable Loans

Assume your lender is not going to adjust your repayment. So if you want to adjust your repayment then you need to contact your lender to request this to occur. If cashflow is tight, then this might be your preferred option. If you are handling the repayment at the higher level, then the benefit of paying the same repayments is you are reducing the principal amount of your loan, meaning less interest and you ultimately pay off your loan sooner.

Furthermore if you hit an unexpected cashflow shortage event into the future then you can usually access the funds you are in advance on your mortgage principal and this is referred to as ‘redraw’.

 

What are you saving?

When interest rates drop 0.25% on a $200,000 loan (P & I) loan, the interest savings is about $34 per month, so if you are still paying your full repayment after the decrease, you are effectively reducing your mortgage principal by this additional amount each month.

 

Calculating your Repayments:

There are hundreds of mortgage calculators online that you can access. (Click here for the one we use)

Remember when calculating this you need to be specific about your remaining loan term to get an accurate repayment amount. So if you have 25 years and 6 months remaining you should input 25.5 years to get an idea of your repayment amount.

Of course the very best thing to do if this is all too much work is to contact the Brokerage Team at Empower Wealth and we can not only provide you with this information, but we can also ensure your current loan is working properly and is right for your needs.

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