RBA holds cash rate, but your home loan has other plans

Posted: 2 November 2021 2:30 pm
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Your lender may have dropped your rate, or raised it.

The Reserve Bank of Australia has kept the cash rate at the current rate of 0.10%. All of the experts surveyed in Finder's RBA cash rate survey predicted this decision.

A hold in the cash rate means borrowers should expect home loan interest rates to remain low. The cash rate determines lenders' borrowing costs to fund variable rate home loans. In theory, a low cash rate means cheaper money and therefore lower rates for borrowers.

But the cash rate has stayed at 0.10% for many months. And lenders are starting to make their own decisions, moving rates up and down as they see fit.

Just last month, Australian lenders cut rates on over 120 variable rate loans. At the same time, they increased over 300 fixed rate home loans.

For the last 2 years fixed rate home loans have been very low, even lower than variable rates in many cases. But with the cash rate remaining low, lenders are now shifting their best offers to variable rate loans.

These rate moves mean borrowers should look at their latest home loan statement. It's possible your lender may have lowered your interest rate if you have a variable rate. But you should also check your lender's website. There's every possibility your lender has lowered variable rates for new borrowers while keeping existing customers like you on a higher rate. They can do that.

It happened to me, and I follow this stuff for a living.

If you've fixed your rate there's no need to worry. Fixing means the rate won't change, at least during the fixed period.

Are interest rates likely to rise soon?

58% of the experts Finder surveyed in November expect interest rates to rise in 2023 or later. And as recently as last month, the Reserve Bank itself said it wasn't expecting to lift the cash rate until 2024. But with Australia reopening, property prices continuing to rise and the economy recovering more broadly, some experts now think rate rises may accelerate.

"The conditions for a rate hike are still not met," said AMP chief economist Shane Oliver. "But with recovery getting back on track they should be by 2023."

And in remarks today RBA governor Philip Lowe remained firm. "The Board will not increase the cash rate until actual inflation is sustainably within the 2-3% target range. This will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently. This is likely to take some time."

The fate of interest rates will depend on what happens with property prices, wages and Australia's post-pandemic economy.

Need a home loan? Check out some of the market's lowest rates.

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