It’s finally happened. After sitting at 1.5% for almost three years, the Reserve Bank of Australia (RBA) has sliced 0.25% off the official cash rate in back to back rate cuts, taking it to a new record low of 1%.
It’s history in the making, and lower interest rates offer exciting opportunities for both home owners and home buyers.
Why the rate cut?
Australia has enjoyed an interrupted 27-year run of economic growth. Not only is that a pretty impressive achievement, it’s also a record in the developed world over this period.
However, over the past few months our economy has started to slow. That’s spurred the RBA into action, and as it uses the cash rate to influence economic activity, the recent rate cut is designed to help Australia continue its world-beating run of growth.
How will you be impacted?
Lower rates could impact your borrowing power, and the recent rate cuts may be a cue to review your home loan. If you’re planning to refinance, buy an investment property or upgrade to your next place, now is the time to speak with your Aussie Broker.
For home owners with a fixed rate home loan, it’s business as usual – your loan rate and repayments won’t change for the remainder of your fixed term.
The situation is quite different if you have a variable rate loan, and the first major change might be a message from your lender explaining that your home loan rate has fallen. The big unknown is by how much.
In theory, a lender’s home loan rate may move broadly in line with changes to the RBA’s cash rate. But this doesn’t always happen. Back in August 2016, the last time the RBA cut the cash rate, none of the four big banks passed on the full 0.25% rate cut. Keep an eye on how lenders are responding here.
Making the most of lower interest rates
How much you will save on monthly repayments depends on your lender’s rate cut coupled with the size of your loan.
The important thing is, there’s plenty you can do to super-size the savings of lower interest rates.
Only pay for loan features you need and use
Variable rate home loans come with a variety of features, but more features can mean paying a higher rate. So be sure you’re only paying for loan features you need and use.
Consider fixing
Locking in your home loan interest rate will ensure your rate stays low – the rate you pay stays the same for the term you choose regardless of how market rates are moving. And with fixed rates very competitive right now, it could be worth speaking with your Aussie Broker about switching from a variable rate to a fixed rate.
The downside of fixing is that you’ll miss out on any possible future rate cuts. You may also find that you don’t have the flexibility to make unlimited additional repayments. If this is a concern for you, talk to your Aussie Broker about splitting your loan between fixed and variable rates. This can give you the best of both worlds – the certainty of a fixed rate plus the flexible features of a variable rate.
Check if your home loan is still competitive
Making the most of lower home loan rates starts with getting the right deal for your needs. Set a date to meet with your Aussie Broker to be sure you’re still paying a competitive home loan rate.
Make the most of lower rates
Take action today to maximise the benefit of lower home loan rates:
- Take a look at the rate you’re currently paying – some lenders may not pass on both full 0.25% rate cuts. Talk to your Aussie broker to see if refinancing could give you a better home loan deal.
- Check you’re making the most of your loan features to get ahead with your loan. Don’t pay for loan features you don’t need or use.
- Consider a fixed rate loan to lock in today’s low rates.
- If you’re not comfortable about locking in 100% of your home loan rate, talk to your Aussie Broker about splitting between fixed and variable rates.
Don’t just settle for whatever rate cut your lender decides. Meet with your Aussie Broker to be sure you’re reaping the rewards of lower interest rates.
