Reserve Bank leaves interest rates alone.

reserve-bank

For 12 months straight the Reserve Bank has left interest rates on hold, steady at 2% since last May 2015. But what does that mean?

Though the cash rate has been left at 2% it’s possible that the RB is concerned about a rising Aussie dollar, especially in the face of a recovering non-mining economy. But what does it mean for the average home owner or potential home owner, well it looks like good news for some and less good news for others.

If you’re not on the housing market yet keep saving, regardless of what interest rates do right now, many banking institutions are keeping up the competitive pressure to get your business. If you already have a mortgage make sure you’re looking at whether you could get a better deal with another lender. If you’re an investor keep an eye on chatter about rising inflation warnings that may increase interest rates so be sure to inflation-proof your portfolio.

Many are saying though that this low rate environment is just the calm before the storm, and that rate rises are on the horizon. Typically what happens when rates hit rock bottom is people borrow to their maximum capability (always a bad idea) as when, and they always do, rates rise to balance the economy, people start to miss their home loan repayments. So what many institutions do is double their interest rates when determining the serviceability of the loan, but what does that actually mean? It means that the banks are assessing their borrowing power using double the actual interest rate. Sounds unfair right? Well in reality it isn’t unfair, it’s part of being a reasonable lender but your average first home buyer isn’t going to understand that.

Sally Tindle from Rate City states “ these moves are designed to limit the number of people living in mortgage stress and avoid seeing Australians being evicted from their homes should rates start to climb.” Which of course is a more eloquent way of saying it’s to protect people from the stress and difficulty of not making their mortgage payments.

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