The Reserve Bank has kept the official cash rate at a record low of 1.5 percent, and while that doesn’t directly translate to lower interest rates on home loans, it’s still a good enough reason to see if you can get a better deal on your current loan. Here are some ways a mortgage broker can help more than your contact at your bank.
The cash rate is the interest rate the Reserve Bank charges consumer banks on overnight loans in the money market. So when the RBA cuts cash rates, it’s not a directive to banks to cut their interest rates for consumers.
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But it does typically have a longer-term knock-on effect to consumer banks — it might make a bank more willing to lend to first home buyers, for example. For the most part, the bank is free to decide how it respond to the cash rate.
When your bank won’t budge on its rates
While many banks will keep their rates the same, despite the RBA’s interest rate decisions, some other lenders may take the opportunity to cut theirs to win new business. That’s why, even when the cash rate doesn’t directly impact interest rates, it’s still a good idea to see what else is on offer.
John* was an existing St George customer, with a good strong income and spotless record with the bank.
But his interest rate was a not very competitive 4.02 percent, and he asked the bank to lower it.
St George declined — despite other lenders offering substantially more competitive home loan rates — so he engaged a broker to help find a better option.
John’s mortgage broker found ING were offering rates of 3.68 percent, and they moved their home loan away from St George over to ING.
ING wins over St George & Macquarie
Macquarie Bank were also offering similarly competitive interest rates of 3.69 percent, but John’s broker encouraged him to choose ING. Not only was the rate at ING lower (a hundredth of a percentage point), but they would be protected against any interest rate increases.
That turned out to be a good call, as Macquarie Bank recently lifted their interest rates on all fixed and variable home loans.
The money John saves on interest will now go into paying down the principal, so he can look to purchase another property in the next year or so.
There’s always room to move on interest rates
Even though RBA decisions do not have a direct impact on interest rates for consumers, they do give you room to move if you’re willing to change lenders to get a better deal.
A mortgage broker can help you find the best lender, offering the most competitive rates. Learn more about home loan mortgages and what’s possible for you.