Much to the relief of borrowers around Australia, the Reserve Bank of Australia (RBA) finally cut the official cash rate by 0.25% on Melbourne Cup Day 2011, followed by a second 0.25% drop at its December 2011 meeting. This latest decision took the cash rate to just 4.25%. But what do these cuts mean for Australian borrowers? Is this the impetus to shop around for a “better” deal or perhaps fix your mortgage at a new lower rate?
Before you make any changes, it is good sense to understand what other influences can have on your situation so you can take back some control.
What is affecting our interest rates?
Australia emerged from the Global Financial Crisis (GFC) a relatively strong economy, especially compared to the US, UK and much of Europe. To ensure our inflation didn’t get out of control, the RBA steadily increased interest rates until November 2010, holding them at 4.75% until November 2011. However, the global economy grew only moderately in 2011, not following its strong performance in 2010. This outcome, plus the ongoing credit problems in Europe and a higher CPI result than expected in Australia, gave the RBA’s Board good reason for a second interest rate reduction. The Board expects inflation to be consistent with its 2-3% target as we head towards 2012 and 2013.
No fees = more competition
Since 1 July 2011, exit fees on new mortgages have been generaly abolished, so from this perspective it is much cheaper to switch loans that have been taken out since this date. As with any decision of this calibre, make sure you take into account interest rates, fees and other conditions of a new loan and make sure the switch is worth it in the long term.