As you’ll no doubt be aware, the RBA (Reserve Bank of Australia) announced at its June meeting that it would lower the cash rate by 25 basis points to 1.25 per cent citing that it would support employment growth and provide greater confidence that inflation will be consistent with the medium-term target. Let’s look further into the RBA rate cut and what it could mean for your home loan.
Although widely predicted, the first cash rate drop in three years certainly caused a flurry of mixed emotions and reactions across the economy with some seeing it as a positive thing – it means we all save money right? While others see it as more of a red flag.
Then, yesterday at their meeting the RBA announced a further cut to the cash rate, bringing it to an all time low of 1%. You can read their rationale for doing so here: https://www.rba.gov.au/media-releases/2019/mr-19-18.html
Whatever camp you’re in, the most important take out from an event like this is to take a minute before making any rash decisions and take anything you read in the media with a grain of salt. Remember, it is almost their job to sensationalise in the name of maximising readership.
In any event, not all of the banks have passed on the full cut, which does make things slightly more interesting for those who may be keen to refinance. It also makes it more important for you to speak with a qualified and knowledgeable broker who can filter through the marketing and terms and conditions in order to find you a product that is suitable for your specific requirements.
With all that said and done, you might still be left wondering how a cash rate cut ACTUALLY impacts you.
If you’re a borrower
While not all of the lenders have passed on the full rate cut, if your interest rate is variable you are likely to benefit from some discount. A smart strategy here is to continue to make the same monthly repayments
As an example of how this might look in tangible terms: moving to the cheapest variable rate of 3.19 per cent (from the big bank average of 5.37 per cent) and continuing to make the same monthly repayments could result in significant savings in repayments and cut years off the term of the loan.
So should you refinance now?
It’s probably not the time to rush in and fix the home loan just yet but it definitely is a good opportunity to review things and see if how your bank and product stacks up against the other banks after the dust settles over the next couple of weeks.
Don’t feel as though you are going to miss out on any amazing opportunities by not acting straight away. These are big decisions that need careful consideration in line with your long term goals as well as your current situation.
The great news?
One lender has just announced they will be assessing home loans at 6.5% as opposed to 7.25% which will have a much improved impact on how much the everyday Australian can borrow and should hopefully result in some positive flow on effects to the property market at large.
If you’re keen to find out current rates as well as what your current borrowing capacity might look like, get in touch at any time.
For the full media release from the RBA, click here.
All lending subject to status and lenders criteria. Terms & conditions apply. This document contains general information only. Your own personal circumstances have not been considered and you should seek independent financial advice prior to making any decision on a financial product.
