The May decision by the Reserve Bank of Australia (RBA) is here and it has produced yet another record low cash interest rate. The RBA decided to lower the cash interest rate another 0.25% to 1.75%. Mortgage brokers in Rockingham and across Australia are excited by this news.
While Australia and New Zealand Banking Group (ANZ) has said it won’t be passing all of the rate drops to customers, National Australia Bank (NAB), Westpac, Bank of Queensland and The Commonwealth Bank of Australia (CBA) have all announced that they will be passing on the full 0.25% rate cut to their customers.
ANZ is going to pass 19 basis points or 0.19% to their customers with variable rate loans but this means they are keeping almost a quarter of the cut for themselves. This is because ANZ had a 24% drop in profits during the six month period ending 31 March 2016. According to Fred Ohlsson, ANZ Group Executive for Australia, higher wholesale funding costs are hurting ANZ and preventing them from passing on the full 0.25% rate cut to their customers.
CBA customers will begin to reap the benefits of the rate cut by 20 May, while NAB customers receive their rate cut on 16 May.
How Much Will You Save?
Canstar estimates that someone with a $500,000 loan will save $72 per month. The cut will decrease the rate on an average loan to 4.52%.
RBA Governor Glenn Stevens cited weak inflation data as the reasoning behind the cuts. According to Mr Stevens, low labour costs and low cost pressures in other aspects of business are keeping inflation lower than originally estimated. Due to what he sees as “softening conditions in the housing market,” Mr Stevens doesn’t think this cut will lead to unsustainable price growth in the housing market.
According to Grant Harrod, CEO of real estate giant LJ Hooker, the rate cut will combat a slowing of the markets in Sydney and Melbourne while providing market entry for more first home buyers. Mr Harrod also sees the rate cut as an opportunity for people to pay down a bit more of the principal on their home loans.
Mr Harrod doesn’t expect a sharp rise in real estate prices, saying that vendors must be “realistic” in the coming year.
“It Was a Close Call”
According to Michelle Koper, spokeswoman for CoreLogic, the decision was subject to intense debate and “could have gone either way.” The economy is growing at about 3% per annum, unemployment is low and “the housing market is moderating in a controlled fashion.” However, quarterly inflation was in the negative range and the Australian dollar could stand to fall a bit lower. This gave both sides plenty of discussion points.
Ultimately, the RBA decided that two overriding factors were the most important: falling consumer sentiment and a drop in the consumer price index.
What it Means to Your Home Loan
The rate cut is good news for everyone who has a variable rate home loan. It also presents another opportunity for homeowners to check out their current loan terms and see if they can save money by refinancing.
For many, the new rate presents an opportunity to lock in a low fixed rate for the next five years. It also means those who are buying homes now can lock in a low fixed interest rate during the part of their loan in which the most interest is usually being paid.
We don’t mention it often here but many Australians who love their neighbourhood and their home but need more space or want their “dream home” are choosing to refinance their loans and take advantage of their home equity to create funding to renovate and expand their homes.
Most Trusted Mortgage Brokers in Rockingham
To take advantage of these record low interest rates, call the most trusted mortgage brokers in Rockingham at Smartline Rockingham. We can pre-approve you for a home loan or help you refinance your current home. Call (08) 9527 1800 today.