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What does the RBA interest rate cut mean for your mortgage

The Reserve Bank of Australia (RBA) announced this week that it will cut interest rates by 25 basis points. What does this mean for your mortgage?

The cash rate has remained at 1.50% since August 2016, and the RBA had always said that the next rate move would be an increase to the rate. However, over recent months with the property market continuing it’s downturn, there was growing speculation that the rate would have to move down. An down it certainly went to an historic low of 1.25%.

The rate cut is likely to help stabilise price drops experienced in recent years. If interest rates are too high, house prices tend to be lower because people can’t afford to borrow. When rates drop, people can borrow more and house prices tend to improve.

Which banks have followed suit?

  • CBA was the first of the big four banks to pass on the RBA cut in full, reducing interest rates on Standard Variable Rate (SVR) home loans by 0.25%. This will come into effect 25 June 2019.
  • NAB followed shortly thereafter, again with the full rate cut of 0.25%, effective 14 June 2019.
  • Macquarie Bank have also decided to pass on the full 0.25% to their customers effective 7 June for new loans and 21 June for existing loans.
  • ING have passed on the full 0.25%, effective 25 June 2019.
  • ANZ Bank however has passed on less than 3/4 of the cut, only decreasing rates by 0.18%, effective 14 June 2019.
  • Westpac and St George have done a bit better than ANZ and reduced variable home loans for owner occupied P&I loans by just 0.20% per annum, and (a win for investors!) 0.35% for their Interest Only investor customers.
  • ME Bank will also be passing on 0.25% p.a. for all existing variable home loan customers, effective 27 June 2019. 

Financial analysis has shown that if your lender has passed the rate cut on in full, someone with an average variable rate $400,000 home loan over 30 years would save $58 per month and over $21,000 in interest over the life of the loan.

Managing your mortgage repayments

Now that the RBA has dropped rates, I would urge you to keep paying your mortgage off at your current repayments. Doing this could knock years off your loan, saving you thousands, increasing your equity which will give you more financial flexibility. Please contact us if you would like to know how to set this up.
Note: This only applies to variable home loans, not fixed rate home loans.

Good news and some not so good news for first home buyers

For first home buyers, you may be able to borrow more thanks to lower interest rates and APRA’s recommendation to decrease the assessment rate which is currently 7.25%. There are lenders now offering lower rates specifically for First Home Buyers, with a 3.49% 5 year fixed rate due to hit the market in the coming weeks.

The not so good news for FHB’s is that house prices could start to increase. You may also find it harder to save a deposit because banks will likely cut interest rates on savings accounts.

Question time – what do you want to know?

With the changes to mortgage lending happening since the election, I thought this would be a good time to ask you if you had any property finance related questions for me. No question is a silly question. I will then answer your questions in my next post (I wont mention any names). The thing is, you might not be the only one with that question, but it could be helpful to someone else who may be too shy to ask. So please, over the next few weeks email me with your questions and I will answer them for you in my next post.