In August of this year the Reserve Bank cut the interest rate by 0.25 per cent. With September approaching, there was speculation as to whether this drop would remain in effect. On 5th September, the RBA announced that the cash rate would remain on hold at a historic low of 1.5%.
This is good news for borrowers. Why? Most lenders do not change the monthly mortgage repayment amount even when interest rates are reduced (unless the borrower requests to change this repayment amount). This means that borrowers have been able to seamlessly bump thousands of dollars off their overall loan repayment because they’ve been paying off the same monthly amount whilst the interest rate continues to fall.
The RBA maintains that dropping interest rates works to lower the burden on the economy overall by curtailing high inflation rates and ensuring the AUD is kept low to support Australian exporters.
However, borrowers should always take caution, remembering that just because rates are low, doesn’t mean they will stay low. Therefore, a careful budget allowing for a modest increase is a prudent approach. Most home loans never run full-term. That is, another event will trigger termination of the loan, such as a sale of the property, and this can allow for a new loan under updated rates and fees. Borrowers can also protect themselves against rate rises by fixing or locking in their rate. This will mean paying a little more in the short-term but will give borrowers peace of mind knowing that their rate will not rise.
But, do not fear – as long as you do your research and keep an eye on the rates offered by your lender, you should be in the clear. Talk to one of our helpful and informed EziLend consultants to learn more about the exceptional rates that are on offer at the moment. We’re here to help you.