This week the Reserve Bank decided to cut the official cash rate by 25 bases points to a new record low to 2.00%.
After such a historic move, there is always bound to be a great deal of conversation flying around about how it is going to affect the Australian economy. The Liberal Government has come out in the last 24 hours and encouraged all Australians to start borrowing money, employ more people and spend money in an effort to kick start a slow moving economy. So with the 25 bases point reduction , what does that mean to your repayments on your Home Loan Mortgage?
Well if you have a $200000 mortgage , it will mean a monthly repayment saving of $31 per month which will pay for two tickets to the movies and a visit to the candy bar. A $300000 mortgage will save you about $46 per month which will fill up a small car full of petrol and a $400000 mortgage will net you $61 per month which will almost pay for a pub meal with a drink or two.
There has never been a better time to pay off your home loan debt so if you have “surplus funds” pay it off as the rates will most likely never get any lower. As confidence comes back into the market and people start borrowing and spending, it sometimes has the effect of “overheating the economy “ which puts pressure on inflation which has the reverse effect on the economy so interest rates are increased to slow down the economy. In saying that, the experts don’t believe rates will go up in 2015.
With interest rates reducing, it is not all good news for some people in the market place. It is likely to put more pressure on house prices around the country as more investors pile into the market looking for their share of these capital gains. If you are already in the housing market these very low interest rates provide benefits in terms of lower mortgage payments and an increase in the value of your property. With the added pressure of an overseas home buying market, house prices can be out of reach of normal potential home buyers unless you want to get into a bidding war and go over your budget.
The other group of people that are not happy are the self funded retirees who rely on their income from bank deposits. With rates reducing to an all time low, banks have cut term deposit rates to compensate for this hence income has reduced for retirees and their income they rely on to survive .Some investors are moving their funds onto the share market which can be volatile at the best of times and a higher risk compared to investing in the safety of a term deposit. It is understandable that self funded retirees do not want to run the risk of losing their life savings in the share market if there is a fall in the stocks.
The good news is that if you are looking at a car, bike, boat or caravan now is the best time to buy with interest rates at an all time low. You can finance a car from 3.99% which is lower than a home loan rate so if you are in the market for a new or used car, dealer or private or any other type of unit, contact Saveoncarloans.com.au on 1300 000 326.