When interest rates are cut, most borrowers get a bit of extra room in their budget. But if your goal is to become debt-free sooner, rate cuts offer more than just savings — they’re a chance to get ahead with a few smart strategies.
Here’s how you can make the most of a rate cut and pay off your home loan faster.
1. Keep Paying Your Old Repayment Amount
Let’s say your rate has just gone down and your minimum monthly repayment is now lower. Instead of reducing what you pay, continue paying the same amount as before the rate cut.
This way, more of your repayment goes straight towards the loan principal. That means you reduce your loan balance quicker and save on interest over time.
2. Add a Small Extra Repayment Each Month
Even small extra repayments can make a big difference. Here's a real example based on an $800,000 loan at 5.75% interest over 30 years:
- Minimum repayment: $4,668.58
- Repayment with an extra $130/month: $4,798.58
- Time saved: 2 years
- Interest saved: Over $70,000
By simply adding $130 a month — roughly the cost of one or two takeaway meals — you could shave 2 years off your loan and avoid more than $70,000 in interest.
3. Use Your Offset Account Effectively
If your home loan includes an offset account, use it to your advantage. Keeping money in your offset account reduces the interest charged on your loan. The more money you keep there, the less interest you pay — and the faster you can reduce your balance.
Final Thought
Rate cuts don’t just mean savings — they can help you reach your goal of paying off your home loan faster. A few simple changes can make a long-term difference. If you’re not sure where to start, speak with your mortgage broker. They can show you the best ways to take advantage of your current loan and any rate changes.
