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After holding fire in July, the market expects the Reserve Bank to cut the official cash rate to a record low of 1.5 per cent when it meets next Tuesday. 

The board will look at a cocktail of factors, including growth, the reaction to Brexit, how heated the housing market is and what our neighbours are doing. However, there are three reasons the bank is more likely than not to pull the trigger.

1. Inflation is likely to be weak

This week the much-anticipated quarterly inflation figures will be released. Many economists are expecting the numbers will reflect a sluggish trend. 

As forecast last month, when inflation is weak, the RBA becomes inclined to cut its cash rate because it wants to keep inflation within its target band of 2-3 per cent. What we’re more likely to see tomorrow is inflation figures closer to 1 per cent.

When rates are cut, borrowers theoretically have a little bit more to spend, which pushes demand – and in turn the price – of goods and services up. 

2. The dollar has been rising

One of the RBA’s three goals is to keep the currency stable, as a lower dollar makes Australia’s exports more attractive and supports its prime industries.

However, in the last few months a number of factors have seen it rise to highs of around US75c. Speculation of an August rate cut has helped to temper the dollar’s growth, but it’s still higher than the RBA would like. The June CPI data, to be released on Wednesday, should help to push the dollar lower if inflation is weak, as economists expect. 

3. Mixed signals on unemployment 

While the June figures showed a jump in the number of full-time employees, unemployment rose slightly last month, which adds to the RBA’s case for a cut. 

An interest rate cut stimulates growth, which in theory adds jobs to the market. 

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Learn more about home loans

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

How much of the RBA rate cut do lenders pass on to borrowers?

When the Reserve Bank of Australia cuts its official cash rate, there is no guarantee lenders will then pass that cut on to lenders by way of lower interest rates. 

Sometimes lenders pass on the cut in full, sometimes they partially pass on the cut, sometimes they don’t at all. When they don’t, they often defend the decision by saying they need to balance the needs of their shareholders with the needs of their borrowers. 

As the attached graph shows, more recent cuts have seen less lenders passing on the full RBA interest rate cut; the average lender was more likely to pass on about two-thirds of the 25 basis points cut to its borrowers.  image002