Fixed rates from 2.14% !? Variable from 2.59% !?
With so many cheap interest rates around, many are wondering why they missed out. Here, we explained what has been happening and how you can qualify for a lower rate.
For the average borrower, there is currently excellent opportunity to secure low fixed rates and negotiate a competitive variable rate with your current lender, or with another lender if you qualify. Rates are adjusted according to investment or owner occupied, interest only or principle and interest, and equity position (loan value against house value.)
So what happened to my rate cut?
On March 4th the RBA decreased the cash rate by 0.25%. This was passed on in full by most lenders. It was a little surprising that they did pass they full cut on as rates were already so low, they were quite close to the margins. However, with an oncoming pandemic, they wanted to be seen to be doing the right thing.
On March 20th the RBA announced an out of cycle rate cut. It was not expected that banks would pass this on in their variable rates, and indeed they did not. This cut was intended as part of a Quantitative Easing strategy. The first time this has been used in Australia.
Quantitative Easing is when the Reserve Bank buys its own bonds rather than relying on private investment. Bonds are how our government borrows money. The net effect is what’s called ‘printing money’. Although the money isn’t actually printed, it has the effect of increasing currency circulation when money is tight.
RBA cash rates have been on hold since and are expected to remain so in the foreseeable future. However, Australian banks borrow a large part of their money in the global money markets. As the pandemic strains the global cash supply, similar to what we have seen in the Global Financial Crisis, there could be an upward pressure on variable rates. If this happens, we will likely see a growing gap between rates available for different loan types, with owner occupied principle and interest getting the best rate offers.
For more information on how your rate compares and what other options might be available, contact the team at Success Finance Solutions for a free loan review.