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Business 2 Business: Interest rate reduction improves borrowing capacity

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The latest decrease in interest rates by the RBA of 0.25 per cent per annum not only eases borrowers’ monthly cashflow issues but also has a dramatic effect on most people’s ability to borrow money.

This is because banks and other lenders are now also easing their policies to lend more money, principally because they see their risk reducing.

When rates decline, monthly mortgage payments may become more affordable, reducing financial strain and increasing disposable income.

This allows homeowners to allocate savings elsewhere or, ideally, make extra payments to pay off their loans faster.

Lower interest rates also mean borrowers pay less in total interest over the life of the loan. With more of each payment going towards the principal, homeowners can build equity more quickly.

Additionally, those with fixed-rate mortgages may consider refinancing to secure a lower rate, leading to considerable long-term savings.

Using a mortgage broker to research and negotiate the most ideal rates and lending products can help borrowers make informed decisions about purchasing or refinancing a home, ensuring they take advantage of lower borrowing costs.

Matt Punter, Director, Punters Finance and TSC Mortgage Brokers, puntersfinance.com.au and thesavingscentre.com.au

This column is part of our Business 2 Business (B2B) series featuring industry leaders sharing their expertise. For more great articles, SUBSCRIBE to our FREE news feed, direct to your inbox daily. All you need to do is enter your email below.

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