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Forget the RBA – get your own rate cut!

Why the RBA held rates this month and what the current borrowing and saving environment looks like…

Each month (except January) the Reserve Bank of Australia (RBA) meets to discuss our official cash rate and decide whether any adjustment is required in order to stimulate (or reign in) the economy. Whenever a rate movement is announced, CANSTAR sees a doubling in the number of people looking specifically to refinance a home loan.

This month the RBA left the cash rate on hold at its historic low of just 1.50%.

Why they held rates

In the decision’s accompanying statement, new RBA Governor Philip Lowe, had this to say:

In Australia, the economy is continuing its transition following the mining investment boom. Some slowing in the year-ended growth rate is likely, before it picks up again. Further increases in exports of resources are expected as completed projects come on line. The outlook for business investment remains subdued, although measures of business sentiment remain above average.

Labour market indicators continue to be somewhat mixed. The unemployment rate has declined this year, although some measures of labour underutilisation are little changed. There continues to be considerable variation in employment outcomes across the country. Part-time employment has been growing strongly, but employment growth overall has slowed. The forward-looking indicators point to continued expansion in employment in the near term.

Inflation remains quite low. The continuing subdued growth in labour costs means that inflation is expected to remain low for some time, before returning to more normal levels.

Low interest rates have been supporting domestic demand and the lower exchange rate since 2013 has been helping the traded sector. Financial institutions are in a position to lend for worthwhile purposes. These factors are assisting the economy to make the necessary adjustments, though an appreciating exchange rate could complicate this.

Conditions in the housing market have strengthened overall, although they vary considerably around the country. In some markets, prices are rising briskly, while in others they are declining. Housing credit has picked up a little, although turnover of established dwellings is lower than it was a year ago. Supervisory measures have strengthened lending standards and some lenders are taking a more cautious attitude to lending in certain segments. Considerable supply of apartments is scheduled to come on stream over the next couple of years, particularly in the eastern capital cities. Growth in rents is the slowest for some decades.

Taking account of the available information, and having eased monetary policy earlier in the year, the Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.”

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What does a rate change mean for your finances?

Whether you celebrate or curse the RBA when rates are lowered depends on whether you are a borrower or a saver. For current borrowers, low interest rates are terrific and many would hope for further cuts. For savers, low interest rates are a downright curse and many would have breath a sigh of relief when rates are kept on hold.

Of course, the above emotions are reversed when interest rates rise!

For borrowers

Irrespective of rate cuts or not, those who currently have a mortgage are in clover right now, with home loan interest rates super-low. Currently on our database of loans, minimum, maximum and average advertised home loan rates are as follows:

Table: Residential Home Loan Market – Snapshot of the current market (05/12/2016)
Basic Variable Standard Variable Package Variable 1 Year Fixed 2 Year Fixed 3 Year Fixed 4 Year Fixed 5 Year Fixed
Average 4.27% 4.44% 4.26% 4.19% 4.05% 4.09% 4.44% 4.55%
Min 3.36% 3.35% 3.69% 3.39% 3.64% 3.64% 3.82% 3.99%
Max 5.45% 5.73% 5.23% 5.04% 4.95% 5.05% 5.09% 5.29%
Source: www.canstar.com.au, the search results do not include all home loan providers, and may not include all features relevant to you. Please note these are advertised rates – please check the relevant comparison rate of any specific loan products. Comparison rates are based on loan amount of $150,000. Read the Comparison Rate Warning..

View interactive comparison table

 

Table: Investment Home Loan Market – Snapshot of the current market (05/12/2016)
Basic Variable Standard Variable Package Variable 1 Year Fixed 2 Year Fixed 3 Year Fixed 4 Year Fixed 5 Year Fixed
Average 4.52% 4.01% 4.52% 4.42% 4.28% 4.30% 4.61% 4.76%
Min 3.69% 3.69% 3.88% 3.69% 3.69% 3.69% 3.99% 4.08%
Max 5.55% 5.93% 5.50% 5.17% 5.17% 5.24% 5.14% 5.61%
Source: www.canstar.com.au, the search results do not include all home loan providers, and may not include all features relevant to you. Please note these are advertised rates – please check the relevant comparison rate of any specific loan products. Comparison rates are based on loan amount of $150,000. Read the Comparison Rate Warning..

View interactive comparison table

 

As you can see from the above tables, borrowers should not be complacent about whether their loan is good value. Despite our low rate environment, there is still around a two percent difference between the highest and lowest variable home loan rate on the Canstar database. Even a half a percent reduction on a $300,000, 25 year home loan equates to almost $90 per month, or one thousand dollars per year. That could be easy cash in hand.

Assuming a loan amount of $300,000 for owner occupiers who are refinancing, on the CANSTAR database there are currently:

  • 108 – variable rate home loans with an advertised interest rate of less than 4%
  • 92 – 2-year fixed rate home loans with an advertised interest rate of less than 4%
  • 91  – 3-year fixed rate home loans with an advertised interest rate of less than 4%
  • 9 – 5-year fixed rate home loans with an advertised interest rate of less than 4%

Data correct at 6/12/16. Check current rates here. Keep in mind that all of the loans in the figures above will have various deposit requirements and other conditions attached – it is certainly worth comparing your options though.

While the cheapest home loan is not always the right choice for your situation, the good news for borrowers is that there is plenty of choice out there.

Try out our Home Loan Repayments Calculator to see for yourself how much you can save on your home loan.

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For savers

For those who are cashed-up as opposed to being in debt, our low official cash rate is not such great news. And of course, there is still economic chatter about rates being lowered further over the next twelve months, so if you have cash to invest, think carefully about your options! You can compare current term deposit interest rates here.

Whether you are a borrower or saver, it is important to shop around for the best interest for your situation.

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