Learn how bank cash rate changes affect the interest on your home loan


With the Reserve Bank of Australia (RBA) reducing the official cash rate to an all-time low, you should know how this impacts the interest rate on your home loan and whether or not you are still getting a good deal.

When the interest rate on your mortgage changes, it can feel like you’re losing control of your debt, but changes like this are a part of every loan’s lifespan and you really need to be aware of what they mean for you.

The interest rates that banks charge on their home loans are influenced by the RBA’s cash rate. That cash rate is reviewed by the RBA on a monthly basis in order to safeguard Australia’s economic stability. The cash rate is the rate charged on loans made between the RBA and your lender, and this in turn has a very strong impact on the interest rates your lender charges you.

According to Advantedge General Manager Brett Halliwell, ‘The RBA supports the banks with liquidity facility.  The RBA is a bank to the banks. The cash rate is effectively the rate at which the RBA will lend to the banks, and what the banks effectively use as a reference rate for other things.’

When the cash rate is changed by the RBA, lenders decide whether or not to reflect that new rate in the interest they charge their mortgagees. 

This is entirely the decision of each lender and depends on the market and how the lender is performing at the time of the cash rate change.

‘If you look at the mortgage market, specifically by itself, it is very competitive,’ Halliwell says. ‘It is about the lender trying to get the right outcome on the deposit side of the balance sheet within the context of a very, very competitive marketplace, but recognising that a reference rate has changed and, therefore, looking at where they stand.’

Some lenders choose to alter their interest rate to be higher than the RBA’s cash rate change and, in these cases, you may find that other lenders are offering lower interest rates than the one you currently have.

It can be difficult and time-consuming to try to keep up to date with how your particular lender manages cash rate changes and where that leaves you financially.  This is made all the more tricky when you factor in fees, charges and the flexibility offered by different loan products, which all need to be considered alongside the interest rate.

Fixed rates offer less flexibility, but more certainty, and if you believe that rates are unlikely to fall further, an easy way to regain control of your interest rate is to lock in a fixed rate for a set period of time.

An MFAA Accredited Finance Broker is familiar with the different lenders and their responses to cash rate changes, and can track interest rate fluctuations across a panel of lenders to ensure you’re getting a great deal. 

For more information on how cash rate changes could be affecting your home interest rate, you can call MFAA Accredited Finance Broker Louisa Sanghera from Zippy Finance on 1300 855 022.

Is your lender offering lower interest rates to you, or are you in the process of shopping around for a better deal? Let us know how you fare in the comments section below.

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