What the November RBA rate cut means for borrowers

The most recent RBA rate cut has brought down the cash rate to an all-time historic low of 0.1%. But does this translate into immediate savings for borrowers? This may not always be the case. The cash rate fixed by the RBA is the rate it charges commercial banks for loans. A change in the cash rate does not imply an automatic change in rates charged by the lender. It’s up to the lender to decide if cash rate changes should be passed on to its borrowers or not. So, while the majority of lenders do pass on the rate cut benefits to existing and new customers, there are instances where this may not happen. Here’s a quick look at what you can do.

If you are an existing mortgage holder who hasn’t refinanced

If your home loan is over two years old, there is a chance that your rate isn’t competitive.

• Begin by checking if your lender is offering you the same rate as new borrowers
• If you’re being charged a higher rate, have a conversation with your lender. If you aren’t able to get your lender to match your rate with what is being offered to new customers, be ready to walk away.
• Scope the market. Even if your lender offers you the rate it is offering new customers, there still may be a better lower priced product in the market. Also, keep in mind that the lowest rate product may not be the best option for you. Some loan features like an offset account or redraw facility may be crucial in expediting homeownership. Be sure to not compromise on these features while refinancing. The most effective way to do this is to rely on the professional guidance of a mortgage broker to find the best rate as per your circumstances.

If you’ve recently refinanced

In this case, switching lenders may not be of much help on account of the exit fees. But what you could do is see if your current lender is passing  on the recent RBA rate cut to new customers. If your home loan has a higher rate, negotiate with your lender to bring down your rate to match what it’s charging new customers. Banks are vying for the business of customers who are not financially impacted by the ongoing pandemic. So, if you are financially secure, you are in favourable negotiating position and are quite likely to get your lender to charge you a better rate.

If you are looking to buy property

Whether you are a first home buyer or looking at your next property, current circumstances make it the perfect time to make a move.

• Interest rates are the lowest in our history.
• There is lesser buyer competition as several buyers have postponed or cancelled their purchase on account of being financially hit by the pandemic.
• Several buyers looking for financial respite through property sale put buyers in a favourable negotiating position.
• There are multiple government property schemes, grants and incentives, especially for first home buyers.

As the impact of lender and govt incentives gain momentum, property prices have gradually begun to rise after flatlining for months. The window of opportunity for property buyers may therefore close soon. Engage a mortgage broker to act fast and understand the best home loan options as well as govt. Schemes and incentives you can benefit from.

If you are looking at accelerating homeownership

Refinance or negotiate with your lender to get yourself the best possible rate. If your loan is over a year old, there should be a substantial difference between your repayment size and what you can afford to pay. This is because lenders check your eligibility against a ‘test rate’ which is usually 1 to 2% higher than the rate they are charging you. For home loans older than a year the gap between the interest rate before the series of RBA rate cuts and current rates is quite large giving you an opportunity to pay more into your mortgage and expedite homeownership.

Reach out to us for the best way forward as per your circumstances.