Compare the Market’s Economic Director David Koch has cast doubt on a potential interest rate cut from the Reserve Bank of Australia this month but says there may be ways for mortgage holders to claw back cash without an official rate cut.
While rates decreased by 0.25% to 3.60% in August, leaving average borrowers with a $660,000 loan around $105 better off every month, Mr Koch said it was becoming increasingly unlikely that the RBA would lower rates in September.
“The latest monthly CPI data shows headline inflation rose 3%. While this is only a monthly figure, I wouldn’t be hedging any bets that we’ll see rate relief at September’s board meeting. The RBA will no doubt be taking a ‘better to be safe than sorry’ approach here.
“They’re walking a tightrope right now, balancing between lowering rates to help homeowners who have been hammered over the past few years and preventing inflation from creeping back outside the target range.”
Borrowers have enjoyed rate cuts in February, May and August this year, with interest rates slashed by a quarter percent each time. While the potential of a hold this month may be a bitter pill to swallow for some, Mr Koch said many experts were still forecasting some further relief in the near future.
“The Reserve Bank will be monitoring the quarterly inflation data that’s released in October to give a clearer steer of when homeowners can expect another rate cut,” Mr Koch said. “They’ll be looking very closely at things like the rate of employment and export demand. But there’s still a lot of uncertainty around the global economy right now, so it’s very touch-and-go.
“But providing key factors remain in the RBA’s target range, we may see some further relief in November. Wouldn’t that be a nice Christmas present?”
While most economists forecast there will be at least one cut before the end of the year, Mr Koch said savvy borrowers may be able to create a discount own their own.
“The RBA is taking a slow and steady approach to this rate cycle,” Mr Koch said. “But the good news is there are things you can do to reduce your rate in the meantime.
“We’ve seen several banks, including CBA and Westpac, start to offer fixed rates with a four in front. Many variable rates on the market are hovering around the mid-fives. If you’re looking for certainty around your repayments for a set period, a fixed-rate contract could be worth considering. Of course, it means that if rates reduce further you might not be able to take advantage because you’ve locked into an agreement.”
Mr Koch also said that some banks were offering cashback offers in the thousands for borrowers who refinance. Meanwhile, Compare the Market analysis shows there can be 0.48% difference between some advertised rates.
“That difference could represent a saving of $201 on monthly repayments – or $2412 annually – for someone with an average loan of $660,000,” Mr Koch said. “Of course, these competitive rates are typically reserved for new customers, so you need to do a bit of research. The best rates might not be with your current lender, but a tiny bit of effort could leave a lot of money in your pocket.”
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Phillip Portman | 0437 384 471 | [email protected]
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