We’ve had two consecutive interest rate cuts and majority of the banks have passed on the the full rate cut of 0.50%.

What does that save you monthly or annually on your mortgage? Let’s assume your bank only passed on 0.20% rather the 0.25% both times, making the total reduction 0.40%.

What does A 0.40% interest rate reduction actually mean in dollars?

The Government is hoping that you’ll inject these savings back into the economy by spending them rather than putting any in your offset account or paying down your debt. This is also the reason why Parliament has just approved the increase of low to middle income tax offsets from $530 to $1,080, which you’ll see when you do your tax return this year.

What are you going do with your savings? Will you accumulate them in your offset account or spend them? If your home loan has an offset account and you leave the additional savings in there, how much of a dent will it really put in your home loan? A few thousand dollars will honestly make minimal difference to the term of your loan.

Will you buy a new TV? (JB Hi-Fi shares increased as soon as the tax cuts where announced)

Will you save the money and go on an overseas holiday and spend the remainder on cocktails and memories? Remember, this is a stimulus package to encourage consumers to spend their money and not feel like they need to save for a rainy day.

There’s a better way and it’s something we’ve been doing very successfully with my clients for many years, we use these ‘savings’ to leverage and purchase an investment property. On average it may cost approximately $20 per week for you to hold a $500,000 investment property and as this asset grows in value over the years, using the capital growth of your investment property you are able to pay off your home loan 10 to 15 years sooner.

It is hard to fail, but it is worse never to have tried to succeed. Theodore Roosevelt

Thank you for reading.