Investors using RBA rate cuts to pay down home loans quicker

author-avatar By on November 28, 2019
Investors using RBA rate cuts to pay down home loans quicker

Photo by Paul Hanaoka on Unsplash

Australia’s record-low cash rate is motivating investors to pay down their home loans faster.

That’s according to ‘Your Property Your Wealth’ director and buyer’s agent Daniel Walsh who said switched on investors were making the most of lower repayments by funnelling extra cash flow into their loans.

“Investors with variable mortgages have seen interest rates tumble by one to two percentage points over the past year,” Mr Walsh said.

“Some investors have also opted to refinance now that the lending environment is more favourable to them, which has resulted in their repayments dropping even more.”

“Rather than frivolously spending that extra cash flow, many investors are opting to pay down their debt.”

The Reserve Bank of Australia has cut the cash rate three times in 2019 to a historic low of 0.75%,and investors are now seeing variable loans with rates as low as 2.99% p.a. at the time of writing.

Mr Walsh said the tactic of making extra repayments wasn’t surprising, given that most portfolios would become neutral or positively geared in the near future.

“In fact, the 2019 PIPA Investor Sentiment Survey found that 52% of investors expected to be positively geared within five years,” he said.

“What’s interesting is that the research was conducted before one of the recent rate cuts, so that timeframe is likely to be dramatically shortened.”

Mr Walsh bought his first property a decade ago at age 19 as an apprentice and has since expanded to a nine-strong portfolio worth $4 million.

He recently refinanced his portfolio and now has an extra $9,000 in cash flow to pay down his borrowings, in addition to increasing his passive income to $68,000 a year.

“We are using those extra funds to pay down our portfolio, which at the end of the day is the goal for all investors,” he said.

“Of course, buying strategically located properties will increase your chances of solid future capital growth.

“However, the debt does need to be repaid at some point and the current lending conditions as well as low interest rate environment makes the timing perfect for investors, like us, to do just that.”

Check out a snapshot of some competitively-rated variable rate, principal and interest investment home loans below.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval
VariableMore details
GET A FULL OFFSET ACCOUNT FOR NO EXTRA COST

Low Rate Home Loan - Prime (Principal and Interest) (Investment) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
GET A FULL OFFSET ACCOUNT FOR NO EXTRA COST

Low Rate Home Loan - Prime (Principal and Interest) (Investment) (LVR < 60%)

  • No upfront or ongoing fees
  • 100% full offset account
  • Extra repayments + redraw services
VariableMore details
WIN YOUR HOME LOAN INTEREST FREE

Nano Home Loans Variable Investor, Principal and Interest (Refinance Only)

  • WIN your home loan interest free and save up to $1.1 million. Refinance by 29 October. T&Cs apply.
  • Refinance Only. Fast online application, refinance in minutes, not weeks.
  • No Nano fees, Free 100% offset sub account. Mobile app. Visa debit card & instant payments.
WIN YOUR HOME LOAN INTEREST FREE

Nano Home Loans Variable Investor, Principal and Interest (Refinance Only)

  • WIN your home loan interest free and save up to $1.1 million. Refinance by 29 October. T&Cs apply.
  • Refinance Only. Fast online application, refinance in minutes, not weeks.
  • No Nano fees, Free 100% offset sub account. Mobile app. Visa debit card & instant payments.
VariableMore details
AN EASY ONLINE APPLICATION

Yard Investment Loan (Principal and Interest) (LVR < 80%)

  • No application fee
  • Unlimited additional repayments
  • Unlimited free redraws
AN EASY ONLINE APPLICATION

Yard Investment Loan (Principal and Interest) (LVR < 80%)

  • No application fee
  • Unlimited additional repayments
  • Unlimited free redraws
VariableMore details
FREE REDRAW FACILITY

Smart Investor Home Loan (Principal and Interest) (LVR < 80%)

  • Option to add an offset for 0.10%
  • Fast turnaround times, can meet 30 day settlement
  • No on-going or monthly fees
FREE REDRAW FACILITY

Smart Investor Home Loan (Principal and Interest) (LVR < 80%)

  • Option to add an offset for 0.10%
  • Fast turnaround times, can meet 30 day settlement
  • No on-going or monthly fees

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. Rates correct as of September 28, 2021. View disclaimer.

Investor lending commitments fall

Australian Bureau of Statistics data released earlier this month found that new lending commitments for investment dwellings fell 4.0% from August to September 2019.

This data comes after three straight months of rises, totalling 11.6%: the fastest rate of growth in the value of investment loan commitments since November 2016.

The September falls were driven by Victoria and Queensland, down 6.5% and 7.0% respectively.

investment dwellings

Investment dwellings excluding refinancing. Source: ABS

2019 has been a favourable year for investors, with lending restrictions relaxed by lenders.

Westpac raised their maximum loan-to-value ratio (LVR) for interest-only loans and loosened rules around its Household Expenditure Measure (HEM).

ANZ made the same changes to investor interest-only loans in March, while the two big four banks made several cuts to their serviceability floors over the course of the year.


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Alex joined Savings.com.au as a finance journalist in 2019. He enjoys covering in-depth economical releases and breaking down how they might affect the everyday punter. He is passionate about providing Australians with the information and tools needed to make them financially stable for their futures.

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