Did you know that changes to RBA’s cash rate may affect your mortgage? Here is what you need to know, the interest rates that banks charge on their home loans are influenced by the Reserve Bank of Australia’s (RBA) cash rate. The RBA reviews the cash rate on a monthly basis in order to safeguard Australia’s economic stability.
“The RBA is a bank to the banks. The cash rate is effectively the (interest) rate at which the RBA will lend to the banks, and what the banks effectively use as a reference rate for other things.”
When the RBA decides to change the cash rate, banks in turn decide whether or not to mirror the new rate in the interest that they charge on mortgages.
The interest rate is entirely up to the bank in question and, completely depends on the market and how that lender is performing at the time of the cash rate change.
Some banks choose to shift their interest rate when the RBA’s cash rate changes. Other banks may leave it, offering lower interest rates and becoming more competitive.
General Manager Brett Halliwell explains that “The RBA is a bank to the banks. The cash rate is effectively the (interest) rate at which the RBA will lend to the banks, and what the banks effectively use as a reference rate for other things.”
When the interest rate on your home loan fluctuates, it can feel as though you don’t have control of your debt. It is important to remember, interest rate changes are a part of every loan’s lifespan and is something you should pay attention to.
Keeping track of how your bank manages cash rate changes and where that leaves you as the person paying the interest, can be time consuming. A simple way to regain control of your interest rate is to lock in a fixed rate, only if you believe rates are not likely to fall further. Fixed rates offer less flexibility, but more certainty.
If you have any questions about your particular situation and mortgage please book in an initial call with us here.
With the RBA’s recent announcement, it’s a good time now to work out how this impacts the interest rate on your home loan and whether you are getting a good deal or not.
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