Rate cut savings are reducing loan principal

Most Australian home owners are putting the extra savings from recent rate cuts towards the principal loan.

A new poll by PRDnationwide found 68 per cent of borrowers will pay down their mortgage sooner thanks to the two rate cuts in November and December 2011.

18 per cent of borrowers said they plan to put the extra away as savings, while 8 per cent said they will spend the cash on discretionary items.

PRDnationwide research director Aaron Maskrey said the survey showed 6 per cent of respondents would spend the saved money on staple goods.

“These people are most relieved to see the RBA reduce the official cash rate – as they were probably struggling to afford the loan repayments,” he said.

Source: The Adviser