Interest rates are now well and truly falling, and with yet another drop announced by the Reserve Bank this week, we’re getting more and more questions about how to make the most of this and what the best strategies heading forward really are.
Claire Williamson
At the moment borrowers are in an unprecedented position. In the next 12 months, more than 80 per cent of all loans will be re-fixed onto cheaper rates. That means that as rates continue to drop in 2025, borrowers will quickly be able to take advantage of the savings and start to make some longer-term decisions.
I’m always of the mind that falling rates are also an opportunity to re-assess an overall lending strategy, especially when it comes to paying off a loan faster, planning for future purchases, or setting up a structure that fits a changing family situation.
So, let’s talk about some ways you can move the needle.
Should you look at other banks?
When rates dip, many borrowers consider refinancing to secure a better deal with a new lender, alongside what is usually a cash incentive payment and in some cases, a more effective loan product. But, you need to look at the whole picture here – break fees, legal costs, and in some cases, valuation fees can all add up. Refinancing is a great option for many people, but you need to get good advice, first.
Use your savings wisely
While many of us have tightened our belts over the last few years, we’re starting to come out the other side. But let’s not waste our hard work. Instead of simply absorbing these savings into your day-to-day expenses, think about putting it toward your financial goals. Could you increase your repayments to pay down your mortgage faster? Build a buffer for unexpected expenses? Or channel it into other investments to diversify your portfolio? Being really intentional with these savings will set you up for future wins.
Be smart with additional borrowing
With cheaper borrowing costs, it’s tempting to take on additional debt—perhaps for renovations, a new car, or consolidating existing debt. Think carefully about how these decisions will impact your long term plans. For instance, debt consolidation that mirrors an existing loan term whilst dropping an interest rate can save you money, but over-capitalising on a renovation may not.
In short, falling interest rates are an opportunity—not just to save money, but to strengthen your overall financial strategy. You might feel a sense of urgency, and with some of the fluctuations in rate terms in the past few weeks alone, people have made some snap decisions that may not serve their long term plan. Make sure any choices you make align with where you see yourself in five, 10, or 20 years.
And above all, stay calm and seek advice.
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