How to make the most of your interest rate cut!

The Reserve Bank dropped interest rates on Tuesday by 50 basis points, as I'm sure you are sick of hearing by now, and even though it is unlikely the rate drop will be passed on in full by the banks and financial institutions, partial rate drops are starting to filter through in the media.  So it got me thinking, what does everyone do with this extra spare cash when an interest rate drop occurs? 

I'm not sure how other banks operate, but when a rate cut happens our mortgage repayments stay the same, if we wish to reduce them it's up to us to contact our bank and arrange this.  But this is exactly the way we like it, it means we are paying extra off our mortgage with each fortnightly payment.  When you think about it, you wont miss the money when you didn't have it before, so why not pretend the rate cut never happened.

There is no better time to pay extra off your mortgage than when interest rates are low, it means your interest payment each month will be lower, and therefore a greater portion of your repayments will go toward paying off your principal.  Another thing to think about, generally the Reserve Bank reduces rates for a reason, especially when it's a double rate cut.  It means the economy is slowing down, and there could be rocky times ahead, so its best to stash away some cash, whether it's in your saving account, or in your mortgage if it can be redrawn.