Last week, the Reserve Bank of Australia has cut the official cash rate by 0.25% to a record low of 0.75%, in an effort to increase employment and lift low inflation back to the 2-3% mark. This is the third reduction in the last five months, with Governor Philip Lowe saying, “The low level of interest rates, recent tax cuts, ongoing spending on infrastructure, signs of stabilisation in some established housing markets and a brighter outlook for the resources sector should all support growth.”
What does this mean for loan rates?
With a cash cut like this, it’s likely that we will see a greater drop in loan rates. The market is currently expecting lenders to pass on 0.15% to 0.2% of the cut, bringing variable home loan rates to go below 3% for a lot of the lenders in the market. If this happens, Australia will see the lowest mortgage rates since the 1960s. Even while the price of homes increased by 0.9% in September, this could be the best possible moment to be making a house purchase. While it may be good news for borrowers and house prices, it can negatively affect savers and the economy in general. With that in mind, it’s important to ensure that what you currently have is accurately represented in the market.
How a financial planner can help
Financial Advisors can offer obligation free reviews on both commercial and residential loans to ensure that what you currently have is tailored to your requirements and competitive in the market. They simplify everything for you by talking to a variety of lenders and getting the most appropriate outcome for your circumstances. For example, let’s say that you have an investment property loan of $865,000 with an interest rate of 4.6% p.a. If they can find a better rate and reduce it by 1%, it will end up saving you over $8,000 a year.
It might be one of the most profitable conversations you have this month.