Case for interest rate cuts firms: What you need to know now

Home loan interest rates are at record lows but are expected to go even lower in June. Here’s how borrowers can maximise their savings from the looming rate cuts.

The Reserve Bank of Australia has added to expectations of a looming cut in interest rates.

In today’s release of minutes from its latest board meeting, where it left the official interest rate on hold at 1.5 per cent, the RBA says “a decrease in the cash rate would likely be appropriate” if inflation stays low and unemployment rises.

The jobless rate has been increasing slightly, inflation is low, and RBA governor Philip Lowe told a business lunch today that a rate cut would be considered at its next meeting in two weeks.

“A lower cash rate would support employment growth and bring forward the time when inflation is consistent with the target,” Dr Lowe said.

Most economists expect one or two rate cuts this year, which leads to a big question: What should millions of mortgage customers across Australia do when rates start falling again?

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The Reserve Bank may soon start moving on interest rates. Picture: Saeed Khan/AFP

CHECK YOUR RATE

If you haven’t checked the interest you’re paying on your mortgage, there’s a good chance that you are paying too much.

Research released today by Canstar shows the average variable rate on offer is 4.34 per cent, but current rates range from 3.44 per cent to 5.93 per cent. That’s a huge difference, and any borrowers near the upper end will pay thousands of extra dollars each year to their lender.

Visit a few online comparison websites to see what’s on offer.

ASK FOR A BETTER DEAL

Many lenders have wriggle room to give good customers a lower interest rate than they are already paying. You just have to ask.

An interest saving of just 0.25 of a per cent can put an extra $50 a month back in the pocket of a borrower.

Arm yourself with research showing you can get a better rate elsewhere.

CONSIDER SWITCHING

If you’re knocked back, don’t be afraid to change lenders if you can. Just make sure the saving is worth the effort.

The new lender will help you switch accounts and direct debits, but in this age of electronic banking it’s still a tricky task if it’s only going to save a few dollars a week.

DON’T RUSH TO FIX

Interest on fixed-rate mortgages has been dropping, and Canstar says average interest rates have dropped below 4 per cent for people fixing between one and three years.

However, further rate cuts or a deterioration in the global economy could send them lower, so keep an eye on where they go from here if you’re thinking about fixing.

NEVER GIVE UP

If you’ve been refused a lower interest rate or been unable to switch to a lender offering a better deal, go back and ask again.

Competition is still fierce and an announcement today by regulator APRA will make it easier to get mortgage finance.

APRA has required lenders to assess people’s ability to repay a loan based on an interest rate above 7 per cent.

But today APRA said it would drop that requirement to 2.5 per cent above the current rate — boosting the borrowing power of many households and making it easier to get a mortgage.

@keanemoney