Debt reduction, rather than improved household cash flow, provides the best financial opportunities in the current record low interest rate environment. Last week’s decision by the Reserve Bank to further reduce the cash rate reinforces the merits of this strategy. Every mortgage holder would be well advised to make the most of these rates while they can.
This current interest rate situation may last for quite a while but it may also be short lived. The truth is, no one knows how long we are going to enjoy these rates. Record low rates tend to focus our intention on the obvious opportunities associated with cheap finance however, they actually present us all with an amazingly powerful opportunity to reduce our debts faster.
There are obvious financial benefits to making larger repayments in a low interest rate environment. Many appear to be heeding the message, with one major bank recently revealing that up to half of its customers plan to get ahead on their mortgage repayments by keeping their repayments at the same level. However, Smartline suggests it is a worthy strategy for anyone with a mortgage on their owner-occupier home.
Paying down debt that does not offer you a tax deduction on the interest expense is always going to be worthwhile. Foregoing the higher household cash flow benefit now provides major long-term financial benefits that every home owner would appreciate – taking years off your mortgage term and saving hundreds of thousands of dollars in interest.