Bank rates around the world start to rise as the RBA holds firmly in neutral

The RBA has today held the cash rate at 1.50 per cent for the last meeting of 2018, with potential for the pattern to be repeated in 2019.

The RBA’s trend of holding rates puts Australia out of step with a number of key economies around the world, as central banks start to lift rates, a decade after the global financial crisis.

Ten of the countries in the G20 today have higher benchmark rates compared with the start of the year.

Most notably the United States has hiked three times this year and is tipped to lift for a fourth in the middle of this month.

Sally Tindall, research director at RateCity.com.au, said it was doubtful the RBA would follow in the United States’ footsteps in the new year.

“The RBA has officially shut the door on a hike to the cash rate in 2018 and is unlikely to consider the possibility until late 2019,” she said.

“The RBA’s hands will be tied until at least after the next Federal election. In the meantime, inflation, wages growth and household debt have a lot of work to do.

“The good news is that Australian home owners can rest easy this Christmas. That said, now is the perfect time to stash a bit of money into the mortgage, instead of putting it all under the Christmas tree.”

Benchmark interest rates around the world

G20 Countries

1 January 2018

4 December 2018

Change

Argentina

28.75%

60.28%

+31.53%

Australia

1.50%

1.50%

0.00%

Brazil

7.00%

6.50%

-0.50%

Canada

1.25%

1.75%

+0.50%

China

4.35%

4.35%

0.00%

France

0.00%

0.00%

0.00%

Germany

0.00%

0.00%

0.00%

India

6.00%

6.50%

+0.50%

Indonesia

4.25%

6.00%

+1.75%

Italy

0.00%

0.00%

0.00%

Japan

-0.10%

-0.10%

0.00%

Republic of Korea

1.50%

1.75%

+0.25%

Mexico

7.25%

8.00%

+0.75%

Russia

7.75%

7.50%

-0.25%

Saudi Arabia

2.00%

2.75%

+0.75%

South Africa

6.75%

6.75%

0.00%

Turkey

8.00%

24.00%

+16.00%

United Kingdom

0.50%

0.75%

+0.25%

United States

1.25% – 1.50%

2.00% – 2.25%

+0.75%

European Union

0.00%

0.00%

0.00%

 

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Each lender has its own policies, but as a general rule you will have to pay lender’s mortgage insurance (LMI) if your loan-to-value ratio (LVR) exceeds 80 per cent. This applies whether you’re taking out a new home loan or you’re refinancing.

If you’re looking to buy a property, you can use this LMI calculator to work out how much you’re likely to be charged in LMI.

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

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A mortgage default occurs when you are 90 days or more behind on your mortgage repayments. Late repayments will often incur a late fee on top of the amount owed which will continue to gather interest along with the remaining principal amount.

If you do default on a mortgage repayment you should try and catch up in next month’s payment. If this isn’t possible, and missing payments is going to become a regular issue, you need to contact your lender as soon as possible to organise an alternative payment schedule and discuss further options.

You may also want to talk to a financial counsellor. 

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Real Time Ratings produces instant scores for loan products and updates them based what you tell us about what you’re looking for in a loan. In that sense, we believe the ratings are as close as you get to personalised; the more you tell us, the more we customise to ratings to your needs. Some borrowers value flexibility, while others want the lowest cost loan. Your preferences will be reflected in the rating. 

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How can I get a home loan with no deposit?

Following the Global Financial Crisis, no-deposit loans, as they once used to be known, have largely been removed from the market. Now, if you wish to enter the market with no deposit, you will require a property of your own to secure a loan against or the assistance of a guarantor.

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

What is 'principal and interest'?

‘Principal and interest’ loans are the most common type of home loans on the market. The principal part of the loan is the initial sum lent to the customer and the interest is the money paid on top of this, at the agreed interest rate, until the end of the loan.

By reducing the principal amount, the total of interest charged will also become smaller until eventually the debt is paid off in full.

How common are low-deposit home loans?

Low-deposit home loans aren’t as common as they once were, because they’re regarded as relatively risky and the banking regulator (APRA) is trying to reduce risk from the mortgage market.

However, if you do your research, you’ll find there is still a fairly wide selection of banks, credit unions and non-bank lenders that offers low-deposit home loans.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.

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An complaints officer – previously referred to as an ombudsman -looks at formal complaints from customers about their credit providers, and helps to find a fair and independent solution to these problems.

These services are handled by the Australian Financial Complaints Authority, a non-profit government organisation that addresses and resolves financial disputes between customers and financial service providers.

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Real Time RatingsTM is the only online system that ranks the home loan market based on your personal borrowing preferences. Until now, home loans have been rated based on outdated data. Our system is unique because it reacts to changes as soon as we update our database.

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