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RBA Updates

RBA Rate Announcement

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RBA Rate Announcement | Cash rate remains on hold

Australia’s cash rate is staying at 2.00% for the third consecutive month

Despite the international economic turmoil currently going on, the Reserve Bank of Australia (RBA) has elected to leave the cash rate at the record low of 2.00%. The basis for the decision is a lower price in commodities than this time last year, in conjunction with a moderate growth projection for international markets. 

In the statement from Governor Glenn Stevens of the RBA, he made special mention of the rise in dwelling prices around the country, particularly Sydney: “Low interest rates are acting to support borrowing and spending. Credit is recording moderate growth overall, with stronger borrowing by businesses and growth in lending to the housing market broadly steady over recent months.
Dwelling prices continue to rise strongly in Sydney, though trends have been more varied in a number of other cities. The Bank is working with other regulators to assess and contain risks that may arise from the housing market. ”

So, what does all this mean for you? With rates predicted to rise later in 2015, now is the time to consider whether your current loan is the right one for you, right now.

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RBA elects to drop the cash rate by 0.25%

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Cash rate continues its descent to lowest rate in Australia’s history

In what was one of the more contentious rate decisions of late, the RBA has
announced that the best course of action was to reduce the cash rate a further
0.25%.

This decision was less about offsetting negative economic trends, but to further
stimulate positive growth signs throughout Australia’s economy.

RBA Governor Glenn Stevens makes special mention of the favourable lending
environment:

“Low interest rates are acting to support borrowing and spending, and credit is
recording moderate growth overall, with stronger lending to businesses of late.
Growth in lending to the housing market has been steady over recent months.
Dwelling prices continue to rise strongly in Sydney, though trends have been
more varied in a number of other cities. ”

What does all this mean? With many predicting this to be the fifinal rate cut of
2015, now is the time to consider whether your current loan is the right one for
you, right now.

April RBA Announcement

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RBA Rate Announcement

The cash rate remains on hold 2.25%…
…however, the RBA speculates that another rate cut is on the way.

Both moderate global economic growth and a below-trend pace of domestic growth are the key reasons for the RBA board deciding to leave the cash rate at 2.25% today.

However, in the official statement released on behalf of RBA Governor Glenn Stevens, it was mentioned that a further rate cut is still a possibility should there be any further decline in the current levels economic activity.

One key area that remains steady is Australia’s housing market. As the RBA announcement states: “Growth in lending to investors in housing assets is stronger than to owner-occupiers, though neither appears to be picking up further at present. Lending to businesses, on the other hand, has been strengthening recently.”

So, what can we expect in the coming months? Despite the ‘wait-and-see’ approach taken by the RBA, many economists are predicting a rate cut before July. This is good news for any borrower out there looking to invest, buy their first home or simply refinance, as this is the ideal time to take advantage of the lowest rates in Australia’s history.

home loan interest rate

Why The Latest Home Loan Interest Rate Cut Is Not Good

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If you are like most people; last months home loan interest rate cut courtesy of the RBA seems like a good thing. The official cash rate is at it’s lowest point in decades (2.25%) the Bank’s have passed on the full rate cut; some dropped their rates even further beyond the .25% reduction delivered by the RBA. You should be excited… Yes?? Well it depends on the individual!

Those with an existing home loan should be jumping for joy. The rate cut will mean more money in your pocket each month; or at least will mean you will save a ton of interest if you maintain your repayments as if the rate did not drop (This is a good idea.. more on this later)

You would think that the first home buyer market would also benefit from the latest round of rate cuts. Home loan interest rates drive your monthly repayment amount. The lower the rate; the lower the monthly repayments and vice versa. In some cases these rate cuts do greatly benefit first home buyers because it makes buying a property more affordable repayment wise (see previous sentence). Problem is; the historical low rates also create a massive problem for the the first home buyer market. Their biggest threat are those existing property owners; especially those owners with equity in their property who are now in a position to either upgrade or buy an investment property.

The increase in buyer activity off the back of lower interest rates has the potential to increase property values (and in some cases it has) meaning that the first home buyer market are being squeezed out as they can no longer afford the inflated property prices in Metro Australia. This leaves the first home buyer with two possible options:-

1. Save more of a deposit
2. Move further away from the major city centres to find more affordable housing.

Both options have issues. Saving more of a deposit is achievable but takes time. As time progresses; property values increase. Moving further away from a city centre is also achievable but means longer commute times to get to work (assuming that you work in or near the city) but gets you into the property market sooner rather than later.

It is clear that existing property owners stand to benefit the most out of last round of home loan interest rate cuts. If you are serious about paying off your home loan early; NOW is the time to hit your mortgage hard and pay off as much as you can before the rates rise (and they will rise eventually) If you can maintain the same repayments that you paid prior to the last rate cut you will reduce the amount of interest payable and therefore the term of your loan will also reduce. Make sure you check out my previous blog titled Tips To Pay Off Your Home Loan Faster for more tips.

Important information: The advice contained in this article is for general information purposes only. It has been prepared without considering your objectives, financial situation and does not constitute advice.