It seems homeowners’ cries for a rate cut fell on deaf ears as the Reserve Bank of Australia (RBA) kept the cash rate on hold at Tuesday’s Board meeting.
Despite the EU and Canadian central banks cutting their cash rate by 0.25% recently, the Board held their ground and said they wouldn’t be swayed by foreign markets.
Compare the Market Economic Director David Koch said New Zealand might be the better indicator to watch.
“If New Zealand were to drop their cash rate, we might follow suit,” Mr Koch said.
“But we need to look inward at our own data first. Once inflation was stripped out, Australia’s Gross Domestic Product per capita fell 0.4% in the March quarter and was down 1.3% this year.
“The per capita ‘recession’ has been masked by booming migration, which boosted annual population growth to 2.5%.
“Everyone seems to be focusing on the fight against inflation, but the economy is weak, and unemployment has been slowly rising to 4%.
“History tells us that when the economy is weak, unemployment rises slowly and can then accelerate very quickly.
“The Reserve Bank will now have to walk this tightrope and decide whether managing unemployment is more important than getting inflation down to their target range of 2-3%.
“My money is on a future rate cut aimed at mitigating the risk of further increases in unemployment rather than dampen inflation.”
But borrowers shouldn’t wait for a cut in the cash rate – a Compare the Market analysis of some of the rates available from the Big Four showed the average difference between front-book and back-book rates is 1.96%.
Therefore, a person with an owner-occupier $750,000 loan could be saving $1,008 a month when they switch from a rate of 8.54% to 6.58%.
| Mortgage size | The difference between variable rates in the market | ||
| Minimum monthly repayments on variable P&I rate of 6.58% | Minimum monthly repayments on variable P&I rate of 8.54% | Difference in monthly minimum repayments | |
| $500,000 | $3,187 | $3,859 | $672 |
| $600,000 | $3,825 | $4,631 | $806 |
| $750,000 | $4,780 | $5,788 | $1,008 |
| $900,000 | $5,736 | $6,946 | $1,210 |
| $1,000,000 | $6,374 | $7,718 | $1,344 |
| Monthly repayments do not include any reduction in the mortgage balance over time. These calculations assume: An owner-occupied variable interest rate of 6.58% compared to 8.54% p.a; principal and interest (P&I) repayments; the loan term is 30 years; and there are no monthly fees. | |||
“I’d encourage people to be sceptical of their home loan interest rate and to compare it against what their lender and other lenders are offering new customers.
“If you’ve been with your lender for more than a couple years, there’s a good chance you’ve fallen on a higher back book rate and are paying more than you need to be.”
Mr Koch said people can potentially find their own rate cut today by using websites like Compare the Market.
For more information, please contact:
Natasha Innes | 0416 705 514 | [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, travel and home loan 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.
