How low could interest rates go?

“Where do you think interest rates will go?”

This is the most common question I receive when discussing interest rates with clients. Is it a good time to fix? Do you think the RBA will lower the cash rate?

The cash rate is the interest that all banks pay on the money they borrow. Changes to the cash rate can affect bank profit, but usually a rate increase will be passed on by banks to consumers via an increase to home loan rates. When the rate decreases, the profit isn’t always passed on as quickly by banks.

Currently home loan interest rates are the lowest they have ever been in Australia. The Reserve Bank have made it clear they are not in favour of negative rates of interest, and given the cash rate is currently 0.10% how much owner can they go?

Lenders fixed rates are generally around 0.55% lower than variable rates as banks want to lock in customers, however it is difficult to see how you could seriously disadvantage yourself locking in rates sub-2%.  

If you don’t like locking yourself in, there is always the option of fence sitting with a split loan of fixed and variable. Locking in a competitive fixed rate ensuring regular consistent repayments however with a variable rate you could benefit from any future rate decrease.

In the end its your risk profile and current and future requirements that will determine what you choose.

To discuss your requirements please call 0408 940 560 or email hello@blueoceansfinance.com.au.

“Where do you think interest rates will go?” - a popular question!