RBA Lowers Rates to a Modern Day Low

By dropping the cash rate to 2.50 per cent at its board meeting on Tuesday, the Reserve Bank of Australia has set the cash rate to the lowest point ever, under its current inflation targeting regime.

Loan Market director Mark De Martino welcomed the 25 basis point drop saying that the rate cut would most likely be matched by banks around the country and that home owners would have the opportunity to keep more money in their pocket or pay off their homes faster.

“On a $300k home loan, this rate drop will shave nearly $60 a month off a home owners repayments. And for those looking to purchase a new home, these lower rates are going to encourage buying however I would caution those looking at a home loan to understand interest rates aren’t always going to be this low,” Mr De Martino said.

Mr De Martino said that a savvy strategy for those looking to pay off their home loan faster and with less interest charges, would be to maintain their repayments at the same amount paid before the rate cut.

“If you're conditioned and comfortable to continue making repayments at the level they’re at, prior to the rate drop, you can pay off your home faster and put more equity in your home by keeping the same repayments,” he said.

Mr De Martino said that for an average $300k home loan on a 30 year term, a home owner could pay off their home 2 ¼  years earlier by maintaining repayments that were 25 bps higher.

Since changing its monetary policy to target inflation in 1990, the RBA has not held the cash rate at a lower point and with the slowing of several sectors of the economy, it’s a move that that will help encourage consumer spending and keep inflation within the RBA’s target of 2-3 per cent, from its current 2.4 per cent.

“Cost-of-funding pressures have significantly eased from last year and lenders are going to leverage this rate drop as an opportunity to attract more customers with competitive interest rates and heavy discounting. If a customer is after a list of the most competitive lenders out there, they should speak with a mortgage broker.”