Taking action with interest rate cuts
Taking action with interest rate cuts
A Mortgage Broker Sydney, we are not in the business of forecasting the Reserve Bank of Australia’s (RBA) interest rate decisions. There are enough bankers and economists playing that foolhardy game. What we do, instead, is consider all likelihoods and help people deal with current reality.
The inflation question
The Reserve has always insisted that it bases its interest rate decisions primarily on Australia’s rate of inflation. They want inflation to be between two and three percent.
Inflation fell by a staggering 1% from the previous quarter in September 2024, from 3.8% to 2.8%. This put the rate well within the RBA’s goal band and demonstrated a definite downward trend. In November and December, however, rates stayed unchanged. Why?
Economists cited the ‘Trimmed Mean CPI’, a definition of inflation that the majority of people were unaware of. All right, then.
Despite this ‘trimmed mean’ being above 3%, the RBA bowed to community sentiment (and generally favourable trends) to reduce the cash rate to 4.1%.
Will rates drop again?
Most likely. If the experts are to be believed, loan holders will likely get more much-needed rate relief in 2025. Following the February rate cut (the first since 2020), the general consensus is that there’ll be a couple more cuts this year. No guarantees though.
The moment to begin preparing for another rate cut is now. It might happen shortly. Or perhaps a little later. Either way, you may want to consider modifying your own mortgage, depending on your present loan situation.
Loans with variable rates
Most Australian mortgage holders have variable rate loans, which fluctuate in response to changes in the RBA’s official cash rate. Therefore, borrowers should automatically see a reduction in repayments soon after the RBA lowers rates.
Your updated repayment information will be sent to you by letter from your lender. Although lenders have the option to postpone rate and repayment reductions, the majority do so in accordance with the RBA’s ruling. They need to remain competitive.
Fixed rates also decrease if variable rates are declining. At Mortgage Broker Sydney, we can analyse the data on your current variable-rate loan and provide you with an explanation of your alternatives. We’ll show you the potential long-term effects of fixing your rate depending on several scenarios.
You don’t even need to be one of our current clients, and our service is 100% free for you.
Naturally, fixing in a market with declining interest rates is always risky since you can end up tied into a rate that initially seems inexpensive but loses appeal if the variable rate keeps dropping.
Fixing is always a possibility, though, if you believe rate reductions will only last temporarily or if you would rather have the security of a fixed monthly repayment amount. You may even think about dividing your loan into a fixed and a variable component in order to hedge your bets.
Make an online appointment or give us a call at 1300 983 670 to chat at any time.
Loans with fixed rates
Unless you want to pay high exit fees, people on fixed-term loans need to wait for the fixed term to end. Don’t worry though, lowering variable rates won’t affect most fixed rate mortgage holders, who already pay less than the current variable rate. It is very rare that switching from a fixed loan early is worthwhile. Most likely, you’re already in a better position. But how long will that last?
Those with fixed rates can also feel more optimistic since, should the RBA cash rate continue to decline, the variable rate they switch back to at the end of the fixed term will be lower than before. Plus, you’re probably better off in the interim if rates don’t drop.
If you’re rolling off your fixed-rate loan, we can help you run scenarios that help you decide whether to fix again or move to a variable-rate loan. Ideally we’d have Nostradamus in the room, but we can still draw on current market conditions and interest rate expectations.
Speak with us
It’s always a good idea to review your home loan, regardless of whether interest rates rise or fall. This is especially crucial during times of transition.
Our expert brokers are standing by to examine your existing loan and ensure that it serves you well in the future in addition to being the proper loan for you now.
Mortgage Broker Sydney services are available at no cost to you – ever. Naturally, you will still have to pay back your loan and pay your lender any regular fees if you do take out a new loan.
Get in touch with Mortgage Broker Sydney today.
Michael began his career in the finance industry over 35 years ago. He progressed through the ranks at the CBA in both retail and corporate lending, culminating in a senior position as a Corporate Relationship Executive. His decision to leave the bank in 2003 to become an independent mortgage broker was driven by his desire to assist everyday customers break through the jargon of the banking world and access the best loan products in the market. His experience is wide-ranging from helping first time buyers to large commercial enterprises. What Michael doesn’t know about home loans, simply isn’t worth knowing!