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How RBA Rate Changes Affect Your Interest Rate

 

With the RBA setting the official cash rate at all-time lows, it’s a good time to work out how this impacts the interest rate on your home loan and whether or not you are getting a good deal.

 

The interest rates that banks (and lenders) charge on their home loans are influenced by the Reserve Bank of Australia’s (RBA) "cash rate".

 

The RBA is a bank to the banks and the cash rate is the rate at which the RBA will lend money to the banks. The cash rate is reviewed by the RBA on a monthly basis in order to safeguard Australia’s economic stability.

 

When the cash rate is changed by the RBA, banks decide whether or not to mirror the new rate in the interest they charge their mortgagees.

 

This is entirely up to the bank in question and depends on the market and how the bank is performing at the time of the cash rate change. Setting an interest rate is about the bank trying to get the right outcome on the deposit side of the balance sheet within the context of a competitive marketplace, but recognising that a reference rate has changed.

 

Some banks choose to shift their interest rate changes higher or lower than the RBA’s cash rate change and, in these instances, other banks may be offering lower interest rates than the one you currently have.

 

Keeping track of how your bank manages cash rate changes and where that leaves you as the person paying the interest can be time consuming, and is made more difficult by fees, charges and the flexibility offered by different loan products, which all need to be weighed alongside the interest rate.

 

A simple way to regain control of your interest rate is to lock it in for a period, if you believe rates are not likely to fall further. Fixed rates offer less flexibility, but more certainty.

 

Stanley Finance are familiar with the different lenders and their responses to cash rate changes, and can track interest rate fluctuations across a panel of lenders to ensure you’re getting a great deal.

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