RBA cuts the cash rate again in October

Posted: 1 October 2019 2:30 pm
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After the third Reserve Bank cut in 5 months the cash rate is now at the historic low of 0.75%.

The Reserve Bank of Australia has lowered the cash rate for the third time this year. The cash rate now stands at 0.75%.

Borrowers can expect to see some variable mortgage interest rates fall below 3.00%.

This rate cut was expected by many, although it was far from certain, with 55% of the experts in Finder's latest RBA survey predicting the move.

The Reserve Bank lowered the cash rate to 1.25% in June and then to 1.00% in July. Prior to that the cash rate had stayed at 1.50% since August of 2016.

These cuts have led to historically low mortgage rates and have seen a slight recovery in house prices. But inflation and unemployment remain too low and too high, respectively, for the RBA and seem to have pushed the Bank to make a third cut.

"A trend towards higher unemployment and a slowdown in jobs growth were likely the primary factors in the RBA's decision to cut rates to a new low," said CoreLogic head of research Tim Lawless, "as well as concerns around persistently weak household spending, subdued wages growth and low inflation."

Mortgage Choice CEO Susan Mitchell said, "The latest data from the labour force supports the case for another reduction to the cash rate. According to the Australian Bureau of Statistics (ABS), the unemployment rate rose to 5.3% in August and the underemployment rate rose to 8.6%."

The official cash rate determines banks' overnight borrowing costs. A lower cash rate makes it cheaper to fund variable rate mortgages, and many lenders pass these cuts straight on to borrowers. But it also means that lenders typically lower the interest rates on their savings accounts too.

Lenders are under no obligation to lower their rates. Some may pass on a full 0.25% cut while others may offer smaller cuts. This is often because they're trying to balance lower mortgage rates with lower interest rates on savings accounts.

The lowest variable rate available through Finder prior to the rate cut was 3.09%. Hypothetically, if a lender passes on the full 0.25% then we'd see variable rates as low as 2.84%. That can make a big difference to your repayments.

Let's say you'd borrowed $400,000 over 30 years and your rate fell from 3.09% to 2.84%.

  • Monthly repayments at 3.09% = $1,705
  • Monthly repayments at 2.84% = $1,652

That's a difference of $53 a month, $636 a year of $19,080 over the life of the loan.

To see which lenders passed on the previous cuts, when and by how much, check the following links:

How can I make sure I benefit from this rate cut?

There are a few steps you can take to make sure you get a rate cut on your mortgage:

  • Check your current interest rate. Also, check that you have a variable mortgage (fixed rate loans aren't directly affected by the cash rate).
  • Ask your lender if they are passing on the cut. If not, start comparing home loan rates.
  • Find a better deal and apply for it. Once accepted, your new lender will handle your old one and take over the loan.

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