The Reserve Bank is just over a week away from its next cash rate decision and while many economists are forecasting another increase, Compare the Market’s Economic Director David Koch says it’s time to give homeowners a lifeline.
With the latest Consumer Price Index data due later this week, an impending Federal Budget announcement on 12 May and the ongoing war in the Middle East, Mr Koch said the RBA has a lot to weigh up.
“They’ll be thinking about whether oil prices will stay high for longer, because if the Middle East crisis resolves itself, oil prices will drop significantly — and that would take a big chunk out of the inflation rate.
“The other thing they’ll be thinking about is Australian households. Consumer confidence has plunged and business confidence has fallen to almost record lows. Consumers cutting their spending is bad for the economy because small businesses start to suffer.
“And bosses not having confidence is bad for the economy too, because they won’t invest and they won’t hire people. So the Reserve Bank doesn’t want to crush consumers and businesses with another interest rate increase.”
@comparethemarketau Do you think the Reserve Bank will hike or hold the cash rate this month? Either way, now is a great time to get your household finances in order. Compare your big five bills and see if you could save. Why refinance your home loan? Refinancing lets you swap your current home loan product for a new one, which can come with a whole slew of potential benefits including: – A better interest rate. Shopping around affords you the luxury of finding a home loan with a lower interest rate. – Avoiding a high revert rate. Fixed rate and introductory-period loans generally revert to a standard variable interest rate after a pre-determined amount of time, which is often much higher than the market average rate. Consider reviewing your fixed interest rate a month or two prior to the end of the fixed rate period, but be aware that you may pay a break fee when refinancing a fixed rate home loan. – Access to more loan features. Your current home loan may not offer the features that you now might find useful such as an offset account, redraw facility, the option to split your loan or the ability to make additional repayments. By shopping around and refinancing, you can end up with a home loan that has the features you want. – Debt consolidation. If you have an array of outstanding loans with higher interest rates than your home loan, you could consider refinancing in order to consolidate all of your debt into the one loan, with a lower interest rate. However it’s worth noting that you may pay significantly more in interest charges over the life of your home loan if you consolidate your debts in this way. – Adaptability and flexibility. Refinancing gives you an opportunity to reassess your loan term and home loan repayment frequency, along with your ability to make extra repayments. If done smartly, this could potentially save you money over the life of the loan. Compare home loans now with Compare the Market #SmartChoices #savings #Budget #PersonalFinance
In addition to interest rate increases in February and March, Mr Koch said higher petrol prices had already delivered a financial impact similar to an official interest rate hike.
“Because that interest rate increase — or the equivalent — has already come through in higher petrol prices, I reckon they might hold the line,” Mr Koch said. “It’s a big call, but the week after is the Federal Budget, and they don’t know what’s coming there. They might think, ‘okay, let’s give ourselves some breathing space, see if the Middle East crisis resolves itself, and see what’s in the Federal Budget’.”
If the RBA does hike rates again in May, homeowners could be forking out hundreds more each month, depending on their loan size.
Impact of a potential rate rise on Australian mortgage repayments
| Loan size | Monthly impact of a 0.25% rate increase | Monthly impact of x2 0.25% rate increases (0.50%) | Monthly impact of x3 0.25% rate increases (0.75%) | Monthly impact of x4 0.25% rate increases (1%) |
| $500,000 | $79 | $158 | $239 | $320 |
| $600,000 | $94 | $190 | $287 | $384 |
| $750,000 | $118 | $237 | $358 | $480 |
| $900,000 | $142 | $285 | $430 | $577 |
| $1,000,000 | $157 | $317 | $478 | $641 |
| *Calculations assume an owner-occupied loan with a variable interest rate of 5.42% that is increased by 0.25% a month. It assumes a 30-year loan term, with no ongoing fees. This does not take into account the reduction of the loan balance over time. | ||||
Mr Koch said it was now up to Australians to claw back cash where they could.
“It is the time to start plugging all of those financial leaks that are coming out of your household budget to see if you can get better deals,” Mr Koch said.
“Where can you make savings? How can you deliver an interest rate cut or the equivalent of an interest rate cut to your household budget? Number one: make sure you’ve got a home loan that suits your circumstances. If you don’t, do the numbers and consider refinancing.
“Go through your big four bills: your home and contents insurance, private health cover, your car insurance and your energy bills and just check whether you can get savings by going somewhere else.”
For more information, please contact:
Phillip Portman | 0437 384 471 | [email protected]
Compare the Market is a comparison service that takes the hard work out of shopping around. We make it Simples for Australians to quickly and easily compare and buy insurance, energy, and home loans products from a range of providers. Our easy-to-use comparison tool helps you look for a range of products that may suit your needs and benefit your back pocket.
