Households with $300,000 loan $400/month better off

Posted on 7/11/2008  

Households with a $300,000 mortgage are $400 per month better off compared with three months ago, thanks to recent cuts to interest rates.

Those with a $500,000 loan are $680 in front.

In August many families with mortgages had interest rates around 9.6%. Now, following interest cuts by the Reserve Bank of Australia in September, October and November (and assuming banks stop playing games and pass on the full November cut), most are likely to have mortgages around 7.6%.

Comparing the before and after situations, households with a $300,000 mortgage save $406, those who owe $400,000 save $540 and those borrowing $500,000 are $680 better off.

The comparisons for principal-and-interest loans over 25 years with monthly repayments are:

$300,000 loan: Aug payment $2642, Nov payment $2236, saving $406.

$400,000 loan: Aug payment $3522, Nov payment $2982, saving $540.

$500,000 loan: Aug payment $4403, Nov payment $3727, saving $676.

Just to recap, the RBA cut official interest rates from 7.25% to 7% early in September, the first official cut since December 2001, following 12 consecutive rises between May 2002 and March 2008. Then in early October it cut rates from 7% to 6%, followed by a further cut of  0.7 percentage points in November,  reducing the official rate to 5.25%.

This means mortgage rates have dropped 2 percentage points in the space of two months.

ENDS

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