RBA keeps interest rates steady

RBA keeps interest rates steady

June 13, 2011

In spite of all the will-they-or-won’t-they hoopla surrounding an interest rate rise, the Reserve Bank of Australia (RBA) has once more kept the official cash rate on hold at 4.75 percent. The RBA announcement last Tuesday followed the release of economic data revealing that, in the wake of January’s natural disasters, the economy contracted by its worst levels in 20 years.

However, finance experts are still adamant homeowners will be hit by an interest rate rise later in the year, with August a likely date.

An RBA rate increase by 0.25 percent adds around $60 per month to the cost of the average Australian mortgage repayment.

RBA data shows that since April 2009, the average standard variable rate has climbed 2.05 percent, to around 7.8 percent. During the same period, the RBA has increased the cash rate 1.75 percent its current rate of 4.75 percent.

Adding to the likelihood of a future rate rise is that the downturn is most likely only a blip on the long-term economic radar; as the mining and resources industries recover from the floods, so too will the nation’s exports.

Speaking at a property debate in Sydney recently, AMP chief economist Shane Oliver said he does not believe the property market will crash. Oliver added that estimated home prices are currently 25 percent above their long-term trend and will most likely remain stagnant for quite some time. A more significant drop in prices could be prompted by an unexpected oversupply, a slowdown in resource demand from China or RBA interest rate pressures, Oliver said.

 

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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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