Interest rates have dropped in Australia dramatically over the past months, we are now at record lows. Many home owners seem to be keeping up their repayments at the same level to try pay off the principal faster, while this strategy has its merits what other strategies could they be using?

Here's a few quick tips some of the experts giving.

Wait a bit longer before fixing interest rates.

Despite the interest rate reduction in all home loan products, there is still a considerable gap between the variable and fixed rates on offer. Discounted variable interest rates of around 4.69% are available, compared with fixed of 5.19% for three years.

Look for a home loan that offers flexibility

However, once rates do bottom out – although this can be difficult to pick – you want to be able to switch to a low fixed rate, or perhaps split your loan into fixed and variable. Therefore, if you’re taking out a home loan now, make sure it provides the flexibility to switch in the future at a reasonable cost.

Take out an interest only loan but make principal and interest repayments

If there is some concern about job security or a reduction in future income (perhaps for one partner to stay home with a baby), taking out an interest only loan can provide some breathing space if required. However, while rates are low and you have full earning capacity, make principal and interest repayments plus more if possible to get ahead. The principal and additional repayments can be accessed as redraw in case of future need.

Consider mortgage protection insurance

This is the insurance that ensures that you, as the borrower, can continue to make your loan repayments should you become seriously ill and unable to work. A 38-year-old couple with monthly loan repayments of $1500 can each be covered for the full loan repayment at $50 per month. Maximise this unique opportunity to its full potential but make sure you have contingencies in place for when rates do rise again.

If you have any extra tips you'd like to share, please leave a comment or join our discussions in the forum.

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Why Don't Banks Pass On The Benefits Of Lower Interest Rates.
written by Michael Clayton, April 08, 2009

In the 1950's banks paid you money to keep your money in their bank, ans they paid you a fixed interest rate, and there were no bank fees. Your money would incur interest forever. Now GREED is all banks think about. Why don't they pass on official interest rate decreases, the soon pass on rises don't they. Why are there fees on everything you do? GREED! Why did the Australian Government ever deregulate banks? The banks should be nationalized. Taken from shareholders and given back to the people. Anyone want to start a political part to do this? If so I'm IN.

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Interesting
written by Carl Taylor, April 18, 2009

Michael thanks for your comment, yes its interesting isn't it looking at the past and the current situation. GREED is an interesting human emotion.

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