Ignore the RBA rate cut and you will be better off in the long run: Canstar

Home loan comparison site Canstar has argued there are benefits of homeowners ignoring the latest RBA interest rate cut and sticking to their original mortgage repayment plan. 

Although the latest interest rate cute offers cash-in-hand savings, those who have stuck to their original repayment over the past 18 months are ahead on their mortgage payments by about a month.

In November 2011, an interest rate of 7.78% meant the minimum monthly repayment on a $300,000 loan was $2,272.

In March 2013, the interest rate was cut to 6.42% and meant the minimum repayment for a $300,000 loan went down to $2,008. 

With the new interest rate of 6.13%, the minimum repayment on a $300,000 loan goes down to $1,961 – a total saving of $47 a month.

However, those who have stuck to the interest rate of 7.78% - a monthly repayment of $2,272 – have a cash buffer of approximately $2,607.

Canstar says this is more than a month of loan repayment up your sleeve and may be useful down the track.

In terms of interest paid, a $300,000 loan with the 2011 rate of 7.78% will see you pay out your loan in 19 years and two months at a total cost of $521,881.

Those who reduce their rates each time the rate is cut will pay off their loan in 25 years at around $603,000.

“That’s a lot of extra interest for the sake of a few more dollars in your pocket now,” says Canstar’s senior research analyst Mitchell Watson.