Australian Interest Rates At An All Time Low?
When it comes to finances, it really pays to be on top of the current news and trends in the market. After all, making sure that you get the most out of your hard earned money makes it easier to handle your finances, and put away what is necessary for your needs and wants. And as we continue into our new normal, it’s doubly important to be aware of current interest rates decisions. This affects not just people with home mortgages, loans, and credit card balances, but also people who have invested in term deposits, and fixed interest investments.
For those who have investments such as term deposits, an increase in interest rates generally means a higher rate of return, and a decreasing interest rate means a lower return. But for fixed interest investments such as government or corporate bonds, an increased interest rate means the value of these bonds will decrease.
In the same way, for a lot of Aussies, rising interest rates will mean increased repayments on loans, credit card balances, and home mortgages. This can mean that families will have to control their spending in order to keep on top of financial liabilities. So what are the interest rates at this time, and how will they affect you?
RBA and How It Affects Interest Rates
Some key terms when it comes to interest: cash rate, and RBA.
The cash rate is the official interest rate on unsecured overnight loans between banks. It’s determined in the money market as a result of the interaction of demand and supply of overnight funds. Known by the acronym AONIA in financial markets, it is the risk-free benchmark rate for the Australian dollar. The Reserve Bank of Australia (RBA) is tasked with the responsibility of monetary policy, and has the objective of maintaining the financial system and Australia’s currency, the safety and efficiency of the payments system, as well as the wellbeing of the Australian economy and its people, which includes striving towards full employment rates. The RBA provides media releases after each Reserve Bank Board meeting, and takes into account the current economic climate, as well as how this may affect interest rates in the coming financial year.
Current Interest Rates and Cash Rate Forecast
It’s important to note that in Australia, the RBA Board has kept the cash rate unchanged during the August meeting. At a record low of 0.25%, the Board acknowledged the effects of COVID-19 on the economy, and while we are beginning the road to recovery, the economy may still suffer from current and possible outbreaks. They also acknowledged that fiscal and monetary stimulus will be necessary in order for the economy to bounce back.
RBA governor Philip Lowe underlined the importance of containing the virus towards stronger economic recovery. This progress would help boost confidence of household and business spending, therefore stimulating the economy and possibly boosting employment rates as well. On the flipside, should Australia and other countries be required to do further lockdowns, the recovery will be slow-going.
Experts are predicting that the cash rate will remain at the current rate until substantial progress is seen with regards to inflation and employment. This means that from Sep 2020, to Dec 2021, we could be looking at an unchanged cash rate of 0.25% still.
What Does This Mean?
A lower interest rate can be a relief for the average Australian with a mortgage, loans, or a credit card balance. Lower interest rates can mean that you can get ahead on your repayments because of lower debt repayment rates. If you’re an existing borrower, these low rates may be a good sign for you to reexamine your current home loan, and see if you’re paying much more than you need to be. This can be a great relief especially in the time of COVID-19, where households have been seen to have to tighten their belts in light of effects of the virus on employment.
If you’re looking to build a home, or borrow money, banks and other lenders usually add a margin to the official cash rate. Variable rate loans generally increase the interest rate in repayments when the rate rises as according to the RBA, and it decreases when the RBA announces lower interest rates.
If you have the savings, now might just be the best time to begin your homebuilding journey. With all the grants available provided by the government for homebuilders, as well as the current low interest rates for the foreseeable future, building your own home is a reachable dream. Home deposit loans are available from a wide range of banks, and it’s important to do your research to see which lender is right for you. Some of these home deposit loans require little to no deposit to start off, but these are usually only available when tight criteria is met: namely, a great credit record, stable work history, and a higher interest rate to boot. Some lenders offer 5% home deposit loans, which require you to pay a small deposit. However, this also does mean that you’ll have to include the costs of lenders mortgage insurance with your repayments.
For those with limited savings, you may be able to put together a deposit by looking at other sources of income. Take up a side hustle, take advantage of windfall from family, or ask your eligible family members if they could be your guarantor. Another option is to do your research, and look at home deposit loans online, to compare and contrast what is available and find what’s best for you.
Lenders are more likely to approve Australian home deposit loans if there is a history of savings, and a deposit saved up, because this gives them confidence that you will be able to meet loan repayments. But it’s important to note that if you have limited savings, there are always options out there that will suit your situation, while still getting you into your first home. Ferratum offer fast and easy online home deposit loans that might help you get into your own home to take advantage of the current low interest rates.