RBA’s cash rate hold gives borrowers breathing room – for now
No rate rise today means borrowers have at least another month of historically low rates, and the chance to lock in a good deal now.
Today the Reserve Bank of Australia (RBA) held off on raising the cash rate. 97% of experts surveyed by Finder in our RBA cash rate survey predicted the hold. But 58% also predict that the cash rate, which affects lenders' borrowing costs and impacts home loan and savings account rates, will increase at some point this year.
The RBA has not lifted the cash rate once since November 2010. But it's going to happen. Westpac is predicting at least 6 rate increases in the next 2 years. And even if the RBA holds off on making a move, lenders are already lifting home loan rates of their own accord.
RBA governor Philip Lowe said the bank "will not increase the cash rate until actual inflation is sustainably within the 2 to 3% target range. While inflation has picked up, it is too early to conclude that it is sustainably within the target band."
Rate rises are inevitable. The US Federal Reserve has said it will lift its rates this year, and given that Australian banks get a lot of money from American banks to fund mortgages, lenders here will need to raise interest rates to keep making a profit.
Today's rate hold is good news for borrowers with big mortgages. It buys borrowers a little more time (maybe as little as a month) to enjoy historically low interest rates.
Borrowers worried about rate rises can consider fixing for a couple of years. This could ensure you get a competitive deal as variable rates rise. But just be aware that it's very hard to "time" rate rises to get the best deal. And fixed rate loans are harder to refinance, so if you're planning to sell or move soon, you might want to stick with a variable rate loan.
Building up some savings to act as a buffer against rising rates is a good idea too if you're able to do so. And using a loan repayment calculator is a great way to work out how much more you'll be paying if rates rise.
Here's a simple way to do it. Take your current interest and the amount you've borrowed.
- 2.20% interest rate, borrowing $500,000 over 30 years
- Your monthly repayments = $1,899
Then add a 1 to the number. See how much your repayments jump.
- 3.20% interest rate, borrowing $500,000 over 30 years
- Your monthly repayments = $2,162
Add another 1 just to see how your rate could look in a couple of years.
- 4.20% interest rate, borrowing $500,000 over 30 years
- Your monthly repayments = $2,445
As you can see, a higher rate can make a very big difference to your mortgage repayments. By holding rates down for another month, the RBA is keeping the low rate party going for just a little bit longer.