It’s become a monthly ritual in Australia, the first Tuesday of the month rolls around and the country seems to hold its breath until 2pm when the RBA announces the cash rate – which hasn’t had a change since August 2016.
A common misconception around the Reserve Bank of Australia’s (RBA) decision to hold the cash rate is that mortgage interest rates for the common homeowner stays on hold too. This can’t be further from the truth, as most lenders have fluctuating rates all year round, despite the RBA’s monthly decision.
While it’s true that lenders often take the lead from the RBA when it comes to making decisions on interest rates, they have no legal obligation to mirror the reported cash rate. This means that they have the power to make ‘out-of-cycle’ rate increases or cuts, which has been the case for most lenders over the last two years.
Experts warn that lenders have the power to increase their interest rates by as much as 20 basis points, due to the cost of funding pressures and regulatory requirements. The new spotlight on the banks from the Royal Commission means housing finance is also becoming more restricted, with controls on living expenses and a lowered borrowing capacity for most people.
If the RBA is giving clear indications that it will raise rates in the near future, it’s easier for lenders to increase their rates for mortgage holders. This is the reason behind a increase in the number of borrowers seeking refinance on their homes to take advantage of the lower rates before the looming hike.
So how do you know if your interest rate on your mortgage is around the rate that it should be? Our brokers will assist you when trying to navigate interest rate changes, find one in your area today!