RESERVE RATES HIT RECORD LOW
- Written by Melanie Toye, August 11, 2013
Effective 7 August 2013, the cash rate is lowered to 2.5 percent.
Home owners are either cheering or are unhappy that they fixed their interest rates on their mortgages just prior to the recent lowered rate. For home owners, this is a win win. Whether you fixed at the last record low interest rate or if you are planning to soon. Although it is a celebration for lowered interest paid on your mortgage, it is still important to continue to pay extra into your mortgage, if you can.
The reason for the lowest reserve rate is for the continued slump in global growth that is below average. Commodity prices have declined however when compared to historical standards, they still remain at high levels. It was noted in the statement by Glenn Stevens, Governor of the Reserve Bank of Australia, that there has been an increase in instability in financial markets and in turn has affected a number of emerging market economies.
Additionally, the Australian economy's growth is also under par and is expected to continue as the economy adjusts to lower levels of mining investment. The unemployment rate has risen and recently there has been an increase in borrowing for finance by households.
The Australian dollar has depreciated by nearly 15 percent since the past quarter. If the exchange rate depreciates over time, it is perceived this will help re-balance growth to the economy.
Stevens also stated, "the Board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the inflation target over time."
Another great decision by the Reserve Bank of Australia Board that all Australian home owners will be cheering about. On 2 September, the Board decided to leave the cash rate unchanged at 2.5 per cent.
This gives mortgage owners a chance to continue to add additional money into their mortgage without the funds being chewed up by high interest charges.
And because of this, mortgages will be paid out much quicker. In some cases, if a mortgage owner adds an additional $200 a week into their mortgage. They might be able to chop five years, off their total loan amount. Can you imagine not paying a mortgage repayment anymore? Well, if you pay extra in your mortgage while taking advantage of the low interest rates, you could be living without a mortgage much sooner than you except.
The things you could do with that extra money. Maybe even put it towards a holiday home, or investment property, or building your super, or just taking a wonderful holiday somewhere.
Sooner or later, interest rates will climb again. There is no doubt about that. So taking full advantage of the low interest rates now, is in your favour.
Pending on who your mortgage is with, you might be able to put the additional payments into a redraw facility, in case down the track you need to use it for an emergency.
Some mortgage owners put their additional funds into a savings account to earn interest. But say $5,000 in savings a year, you earn $100 in interest and then taxed from the interest you earned. Would it be more for your end pocket if your savings were put against your mortgage?
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