Smart moves to make when interest rates fall

When interest rates drop, it often sparks excitement, as people start thinking about lower repayments, cheaper loans, and extra cash flow. While it’s tempting to pocket the savings and treat yourself, a drop in interest rates presents an incredible opportunity to make smarter financial decisions that can set you up for the future. If you play your cards right during a period of low rates, you can turn this into a financial win that pays off in the long term.

KEEP YOUR REPAYMENTS AS THEY ARE

If you’re paying off a mortgage, keeping your repayments at the same level when rates drop is one of the smartest moves you can make. Why? Because every extra dollar you pay above your minimum repayment goes directly toward reducing the principal amount. This reduces the overall interest you’ll pay in the long term and helps you pay off your loan faster. For example, if your home loan interest rate drops from 6% to 5%, calculate your new minimum repayment but continue paying the old amount. That difference, which you were already used to paying, will work harder for you by chipping away at your debt

INVEST STRATEGICALLY

Low interest rates can be a double-edged sword for savers. On one hand, borrowing becomes cheaper, but on the other, returns on cash and term deposits may decline. This is a good time to think strategically about investing, you may wish to consider diversifying investments into other more growth-oriented asset classes like shares. If you’re new to investing, you might want to start with small amounts and diversify your portfolio. Low cost exchange-traded funds (ETFs) or superannuation contributions can offer good growth potential over time. Remember, investing comes with risks, so make sure you’re comfortable with your risk tolerance and do your research or seek financial advice

CONSIDER REFINANCING

With lower rates, refinancing your mortgage or loans can lead to significant savings. Lenders often compete aggressively for new customers when rates drop, so you may find an attractive offer with lower fees or a better interest rate. Before refinancing, check for any exit fees on your current loan and calculate whether the savings from switching outweigh the costs. Use tools available online to compare rates and ensure you’re getting the best deal.

SUPERCHARGE YOUR SUPER

Lower rates can also mean reduced returns for retirees and those close to retirement. If you’re still working, consider making extra contributions to your superannuation. Even small amounts can make a big difference due to the power of compounding interest. There are strict rules around contributing to superannuation and the tax you’ll pay, so please talk to a financial adviser if you are unclear about those rules and how they impact you.

PREPARE FOR THE FUTURE

Interest rates don’t stay low forever, so now is the time to think ahead. If you’re enjoying lower payments, consider using use this time to create a buffer for when rates inevitably rise again. Whether it’s saving extra in an offset account or paying down your debts faster, small actions now can protect you in the future.

Remember, the smartest financial decisions often require discipline and planning. Use this time to take control of your money and set yourself up for long-term success.

---

This article has been issued by Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306 and Fortnum Advice ABN 52 634 060 709 AFSL 519190 (Collectively known as Fortnum) (‘Licensee’). The information provided is current at the time of publishing and is subject to change. This article is not intended to contain personal financial, taxation or legal advice and should not be relied on as such. Any advice in this article is general advice only and does not take into account the objectives, financial situation or needs of any particular person. You should obtain specialist financial, taxation or legal advice relevant to your circumstances before making financial decisions. Whilst every care has been taken in the preparation of this information, the Licensee does not guarantee the accuracy or completeness of it and does not guarantee any particular outcome. Past performance is not indicative of future results.