If your minimum loan repayment has been reduced, by continuing to pay the amount you were paying before the rate cut you will essentially be overpaying your loan but the extra repayments will reduce the entire loan amount, paying your loan off faster.
Many loans have a redraw or offset facility which means that any extra repayments will be available to you from your mortgage account as required. These extra funds in the account will reduce the loan size and also reduce the interest payable. If the funds are required for example, to use for a holiday at the end of the year, these funds can be retrieved at that time.
For those who require additional cashflow and who decide to reduce their repayments, it is crucial to keep in mind that these repayments can increase again during any month.
It is important to note that making additional repayments is only suitable if your loan is a variable loan. For those on a fixed rate loan, you need to always make the specified repayment amount.
If you would like to discuss your repayment options, contact your mortgage broker or financial planner today.
Director and Founder of 1st Street Home Loans, Jeremy Fisher, is one of the most awarded mortgage brokers in the industry and winner of the Australian Broker Association's prestigious 'Australian Broker of the Year'. Since 2001, Jeremy has settled in excess of $500 million worth of property loans and delighted clients with exceptional results and highly personalised service. 1st Street Home Loans specialises in Home Loans, Commercial Loans, Leasing and Financial Planning.