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With interest rates at an all-time low, Smartline Personal Mortgage Advisers are telling clients that now is the time to get ahead on mortgages.
Smartline’s executive director, Joe Sirianni, noted that the Reserve Bank’s decision to hold the cash rate at 2.5 per cent has given borrowers the chance to make enormous savings on early repayments.
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“It very much highlights the concept of spending money to make money,” he said.
Mr Sirianni offered the example of adding an extra $100 per week to a 30-year mortgage of $300,000.
“You end up paying off your home loan 11 years faster and saving $115,000 in interest, compared to making the minimum repayment over 30 years,” he said.
“There’s no doubt that now is the time to pay down debt more aggressively.”
Director of Aire Home Loans Greg Kearns agreed with Smartline’s approach to advising clients, but noted that individual circumstances need to be taken into account when offering advice.
“It all comes down to what their individual circumstances are," he told The Adviser.
"Whether there’s one person or two people working in the home; whether they’ve got income protection; whether there are kids in school; and depending on the size of their equity position. So there’s a multitude of different factors involved.”
There are, however, some circumstances in which it is in a client’s interest not to pay down debt ahead of schedule.
Carlos Rodriguez, principal of Aspire Now, believes clients should be aware of the difference between good debt and bad debt.
“My recommendation is that if they’ve got available cash to pay their bad debt, they should do so,” he said.
However, he added that aggressive repayments can sometimes do more harm than good, and that the focus should instead be on converting their bad debt into good debt.
Chris Campbell of Nexus Partners also took a cautious approach, noting that mortgage brokers need to be wary of giving that kind of advice.
As to whether now is the time to pay make hard repayments? “Yes," he said, "but only under certain circumstances.”
