Wednesday, April 26th, 2017
When the interest rates on your home loan fluctuate, it’s natural to feel that managing your debt is out of your control. They can be frustrating but the fact remains that interest rate changes are a natural part of the lifespan of your loan.
To help you understand your situation it’s important to have some knowledge of the ways that the Reserve Bank of Australia’s (RBA) cash rate does affect your own home loan.
Interest rates that banks charge on your mortgage are influenced by the RBA cash rate. This cash rate is reviewed each month by the RBA as a way to protect Australia’s economic stability. The Reserve Bank sets the target ‘cash rate’, which is the market interest rate on overnight funds. It uses this as the instrument for monetary policy, and influences the cash rate through its financial market operations. In turn, this has an impact on the interest rates you are charged by your lender.
When the RBA changes the cash rate, lenders must decide whether or not to reflect the new rate in the interest they charge their customers. What the lender does is up to them and depends on the market, as well as how the lender is performing at the time of the change to the cash rate and the cost of any funds they need to borrow from other sources which are required to meet their corporate operating responsibilities.
Some lenders may make a choice to change their interest rate to an amount that is higher than the RBA’s cash rate change, while other lenders go the other way and offer an interest rate that is lower. For the average customer, keeping track of the way your lender manages any cash rate changes can be confusing and overwhelming.
Understanding the different fees and charges associated with different loan products, adds to the confusion but needs to be understood to get a clear picture of comparing rates on offer. This is where an experienced mortgage broker can help cut through the confusion and present a variety of options, without you doing the running around and research yourself.
One simple way to take control of your interest rate is to choose to fix the interest rate for a defined period. Fixed rates do offer you less flexibility, but they also come with more certainty and the ability to manage your budget.
Always choose a MFAA Accredited Finance Broker who is familiar with all the different lenders and their reaction to cash rate changes. This way, you can have a thorough understanding of the full cost associated with your finance and can aim to get the best possible deal for your situation and circumstances.
Seeking professional advice from a professional finance or mortgage broker is always a smart choice. By taking time to understand your individual needs, you can have confidence that they will help you find a deal that suits you – and one that helps you build a better financial future.
If you have any questions about your finances, either personal or business, please do not hesitate to contact Loans Actually on (03) 8805-1850 or email email@example.com