The RBA announced yet another rate cut last week and now the banks are slowly passing this onto consumers. These rates are the lowest Australia has seen in nearly twenty years.
Typically, rates move up or down by 0.25 percent although they are at a record low. But what does this actually mean for you personally? Well, firstly, let’s explore the reasons around it and what factors affect those changes. The government uses interest rate cuts to regulate what money is available in the economy. In Australia, it is determined by the RBA. They regulate the interest rate changes according to the economic conditions and future forecasts. Based on these conditions, they then decide if they will increase or decrease the interest rate.
The variables around interest rate cuts include things such as inflation, government borrowing and global conditions.
Most people really just want to know how these cuts actually affect them personally.
The biggest weekly or monthly spending for many people is their mortgage. So the interest rate cut or increase affects how much your mortgage will cost you. You know the saying “money makes the world go round”? Well, in this instance, it kind of does as it’s all connected.
Depending on where the interest rate is sitting will control how much money you have in your household budget. This, in turn, affects how much money you have to spend elsewhere.
As a current homeowner, the interest rate cut means your mortgage payments are decreased and you have more money in your back pocket. Be aware that, at times, if the RBA does announce a cut, it doesn’t always mean the banks will pass it onto you. Most often they do and sometimes they pass only part of the cut.
If you are in the market to purchase a home, low interest rates may seem like the ideal time to buy. Mostly true, for the short term. In Australia, rates can be fixed for a maximum of 5 years, so when that time has expired, chances are, the interest rates may have risen over that period. This will have you facing a significant rise in your mortgage repayments. So always be mindful when purchasing a property that you factor in rate increases.
If you are looking for the right advice and assistance getting the right mortgage for you, give Excellence Finance a call. We will help you out and guide you through the process.
