So you may have heard that the Reserve Bank announced this month that they reduced the cash rate down to 1.5% - WHOAZA! That is some cheap money! Now of course, the banks won’t reduce their rates as low as this (as they also borrow money to lend to you, and they also want to make money), however interest rates are now at an all-time record low! What does this mean? Well it may help to give the property market a bit of a well needed boost and it is great for people like you and me to take advantage of not only the low rates and very competitive offers available, but low property prices too!
If you already are in the market and have a mortgage, the below will give you an idea on how your mortgage may be affected in light of Tuesday’s announcement:
Mortgage Balance: Possible Monthly Saving:
$150,000 $31.25 per month
$250,000 $52.08 per month
$350,000 $72.91 per month
$450,000 $93.75 per month
$550,000 $114.58 per month
$650,000 $135.41 per month
The banks have started to announce what reduction they are passing on. Even though there is a good chance within the next week or so, you will get that great letter from the bank confirming your new repayment, it is a very good idea not to lower the repayment just because the rate has decreased. If you can, keep paying the higher amount. This will then assist in growing the surplus held in your loan (almost like savings) and also will mean that less interest will be payable as your loan balance is decreasing a little quicker. Some banks have announced their rate will decrease at 0.10% and one bank has passed on a 0.26%p.a discount (which is more than what the RBA reduced their cash rate by!) – so if your bank hasn’t passed on the full rate or at least a good portion of it, please get in contact with me to review your mortgage, as it is a great time to get some amazing deals!
If you are not yet a homeowner and are looking to enter the market (what a great time to get started!) it is really important to sit down and go over your finances, or set up a budget, to make sure once you have a mortgage, that you have a good amount left over each week (after bills and mortgage are paid), a good amount is about $550. Why so high you ask? Well, these low interest rates will not last forever. Eventually rates will start to increase and thus, your loan repayments will also increase. So if you are not paying extra into your mortgage, or putting a little bit aside each week for when rates go up, you will feel the pinch in the pocket each time your mortgage payment gets taken out!
When applying for a home loan, the bank assesses your financial position usually around the 7.2%p.a - 7.6%p.a mark to make sure, if rates were to increase significantly, you would still be able to make your mortgage repayment (based on your current position). This gives a little peace of mind knowing that the affordability is still there, but in reality, with the rising costs of daily living, building a buffer is imperative.
Now, to ease the temptation of spending, you can put these funds directly into your home loan or offset account. This will again reduce the balance of your loan and mean you will pay less interest each month. So when rates start to increase, if you are not in a position to maybe increase your repayments in line with the new rate, you will have a buffer available to help meet your commitments.
If you are looking at purchasing a home, or still trying to save for a deposit, please feel free to contact me. Not only can I assist with mortgages, but we can assist in setting up budget and savings plans also to get you into your home!
Have a great month, enjoy the last of the cooler days and foggy mornings, and next month I will another blog all ready in time for Spring! In the meantime, if you have any questions, you cal always give me a call on 0401 326 641 or email me direct to firstname.lastname@example.org.