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How do you make the most of a low cash rate?

Not everyone knows exactly what to do when the Reserve
Bank drops the cash rate and holds it low – but here are
some options available to you.

As you likely heard, the Reserve Bank of Australia dropped
its official cash rate back in February to 2.25 per cent, and
has since decided to hold this rate. This resulted in very
low interest rates on home loans – the lowest since 1968,
according to Tim Lawless from CoreLogic RP Data.

That’s all well and good if you know exactly how the cash
rate and interest works, but obviously we don’t all have a
degree in economics! So what does the low cash rate
environment really mean for you?

More money in your pocket
Planning mortgage repayments can put a strain on the
budget, especially given the increasing property prices
across Australia. But with interest rates following the cash
rate cut and decreasing, there’s actually an opportunity to
claw back some funds when you take out a home loan.

The Commonwealth Bank says that on a $300,000
mortgage, the 0.25 percentage point cut from the RBA
results in $48 of savings per month!
This might not seem like much overall, but remember that a
home loan can last for 30 years – $48 per month becomes
$17,280 at this length of time! Of course, you can do with
this what you want – buying something to treat yourself
could be your way to go, or you might want to pay off your
mortgage that little bit faster. The power is yours!

A healthier market
The reason the Reserve Bank decides to drop the cash
rate is often to spark demand in Australia. It’s a reaction to
consumer sentiments low levels, and is seen as a
stimulant for the wider economy by making mortgages
more affordable and spending on items like credit cards
less dangerous due to reduced interest.
What this can mean for the real estate market is much,
much more activity. In fact, in the March statement about
the cash rate, the RBA Governor Glenn Stevens said that
investor activity was thriving – so clearly the ploy is
working.

As for you and your search for the right home, this offers
the opportunity for some great capital gains when you buy
real estate. Higher demand can drive up prices, and if
you’re someone taking advantage of a low interest rate
environment,

Written by

Stephen Bonfield, the Managing Director, previously worked for one of Australia’s major home loan companies as an independent mortgage broker. Steve used this experience to set up his own mortgage broking company - a company that places customer needs at the forefront.

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