When you’ve bought a home or you’re looking for a home loan, you will become very familiar with interest rates and the impact they can have on your disposable income. When an interest rate drops, what does it mean for you?
Firstly, let’s take a look at what affects interest rates.
The Reserve Bank of Australia, also known as the RBA, sets the nations ‘cash rate’. Whether we like their decisions or not, they are responsible for ensuring a strong financial system.
The first Tuesday of every month, except for in January, the RBA board meet to discuss whether they should raise, lower or maintain the current interest rates. They take into consideration a variety of factors such as inflation, the strength of international markets, consumer confidence, the overall state of the housing market and the performance of the Australian dollar.
An interest rate relates to how your mortgage repayments are calculated. So, it stands to reason that as your interest rate drops you will either be able to pay off more of your home loan, or you will have more disposable income.
As interest rates fall, hopefully consumer confidence rises, and this can often lead to increased competition in the real estate market, driving up property prices and making it harder for first home buyers to get a foot on the property ladder.
Why do interest rates drop?
If the Reserve Bank of Australia lower interest rates the banks will usually follow suit, but in recent times we’ve seen them a little hesitant to pass the savings along to their customers, and even if they do pass along the saving, it is usually not the whole amount or a little delayed, so why is that?
The Commonwealth Bank, ANZ, NAB and Westpac are known as the big four banks, they also need to borrow money, and the cost of borrowing has gone up. But whilst the banks maintain that they need to pass on the cost of borrowing to the consumer, that’s you, they are still reporting massive profit growth even in our most financially troubling times.
As the RBA passes along decreases in the interest rate in 0.25 increments, you can enjoy more disposable income, but if the banks aren’t passing along the reduction in the interest rate, you will continue to pay the higher rate of interest with absolutely no gain to yourself.
What can I do?
A mortgage or home loan is a 30-year relationship, if you’re not happy you can look elsewhere. It is advisable to conduct an annual home loan ‘check up’ to confirm your rate is still appropriate for you. No one wants to be paying more than they need to.
Not sure where to look?
Gold Seal Finance can source the right loan for your circumstances. We compare many loans and lender options, and because we work for you and not the bank, we take the hassle out of finding the most suitable home loan for you.
If you’re in or around the Brisbane or Logan area why not pop in for a chat or we can come to you. For your convenience we are happy to come to your home or place of work place and see you; we even do out of hours appointments, just call 07 3423 3877.
General advice warning
This information and the links provided are for general information only and should not be taken as constituting legal, financial or professional advice. You should consider seeking legal, financial, or other advice to check how this information relates to your unique circumstances.