Borrowers attack principal after cuts

by Ben Abbott18 Jan 2012

Mortgage clients are using the boon brought by interest rate cuts to reduce the principal on their loans.

A poll conducted by PRDnationwide found that 68% of existing home owners are taking advantage of November and December cash rate reductions by putting any extra savings toward their loan principal.

Another 18% of respondents planned to save the difference, while 8% will spend on discretionary items.

PRDnationwide research director Aaron Maskrey said the other 6% planned to spend the money on staple goods - an indication that they were struggling to afford the loan repayments.

Maskrey said the RBA was expected to announce further reductions next month.

“Using the discount towards the principal is very savvy and a reflection of borrowers feeling vulnerable during a period of economic instability,” he said. If the borrower can benefit from reduced rates, then do it."

Maskrey added that keeping the extra for a 'rainy day' was also a smart move as unemployment figures could increase with ongoing economic instability.