Home loan customers urged to review their interest rates despite cash rate staying on hold

THE cash rate is staying on hold for a record stretch. But the worst thing home loan customers can do is to remain complacent about their mortgage deals.

HOME loan customers looking to shave down their debts have revelled in rock-bottom interest rates and this stretch is set to continue for some time yet.

The Reserve Bank of Australia board meets again on Tuesday and it's almost a certainty they will keep the cash rate on hold at 1.5 per cent — where it has sat since August 2016.

This would make it the longest-ever period where interest rates have remained untouched.

Borrowers are being urged to review their home loan interest rates.

The current record was set when former prime minister Paul Keating left rates — then five times higher than now, at 7.5 per cent — untouched from February 1995 to July 1996.

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Previous forecasts by economists of an official interest rate rise by the RBA this year are fading fast.

Weak wages growth, low inflation and sluggish economic growth are helping to keep the RBA’s finger off the trigger.

It uses rate rises as a lever to slow things down when inflation gets too hot, but the current level of 1.9 per cent inflation is still below its target range of 2-3 per cent.

CommSec senior economist Ryan Felsman said he expected the official interest rate to remain stable for the rest of 2018, while IFM Investors chief economist Alex Joiner said the RBA board had made it “abundantly clear” that it did not see the need for a rise in the short term.

Realestate.com.au chief economist Nerida Conisbee said the next move in the official interest rate would be up, but not any time soon.

Realestate.com.au’s chief economist Nerida Conisbee believes the next cash rate move will be up, but not for some time.

“Some say it’s 18 months away, but I think that’s too long,” she said.

“The economy is doing okay but we still have a problem with consumers not getting wage rises, not spending enough, facing rising energy costs, and consumer sentiment is not the best.”

Last month’s US rate rise — and forecasts of at least another three more this year — are increasing the cost of overseas money that our banks borrow to lend to Australians, but this has not flowed through to local mortgages.

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Ms Conisbee said Australian banks had been cutting interest rates in a price war to combat the cooling national property market.

“A lot of their wholesale funding costs will increase, and you would expect banks to increase rates, but because the housing market is getting softer we are seeing them cut to try and keep up their volumes,” she said.

So for borrowers looking to massacre their mortgages now is the time to do it.

For owner occupiers paying principal and interest taking advantage of the ongoing home loan war between lenders is key to bringing down home loan debt levels.

Home loan customers should be chasing interest rates deals with a “3” in front.

For several years now borrowers have been urged to hunt down deals with a “3” in front. If they’re paying any more they are simply handing over unnecessary cash to their banks.

As for investors, deals remain competitive but borrowers are still being urged to sniff out rates as close to the four per cent mark as possible to ensure they can get on top of their loans.

Just last month the US Federal Reserve hiked rates from 1.5 per cent to 1.75 per cent — the first time since 2011 it has been higher that Australia’s cash rate.

AMP Capital chief economist Dr Shane Oliver said there was no automatic link between US and Australian rates, highlighted by the fact that the US Federal Reserve had raised its official rate six times in recent years while the RBA did not budge.

AMP Capital chief economist Shane Oliver said there are still concerns over the Australian dollar being “a little too high.”

“I think if the US and global economies remain strong, the fact that the Fed’s hiking tells us where we will eventually go. Stronger global growth will flow through to Australia,” he said.

“I think the Reserve Bank is quite happy for Australian rates to fall below US rates. They still regard the Aussie dollar as being a little too high.”

Financial comparison website RateCity spokeswoman Sally Tindall warned despite interest rates remaining low borrowers should not be complacent.

“Do worry about your loan because history shows that rates will go up eventually so now is the best time to be paying down your debt,’’ she said.

“That way when rates do rise you are in the best position possible.

“There are plenty of big name lenders, smaller credit unions and low-cost online lenders willing to offer owner occupiers rates of 3.6, 3.7 and 3.8 per cent.”

The lowest owner occupier variable rate on RateCity’s database is by Reduce Home Loans at 3.39 per cent.

Just last week Suncorp hiked interest rates on all their variable rate loans between five and 12 basis points. The bank’s chief executive officer for banking and wealth David Carter labelled cost of funding pressures for the rate jumps.

Suncorp chief executive officer David Carter announced variable rate increases last month.

Home Loan Experts’ managing director Otto Dargan believes, “a good owner occupier home loan rate is anything under 3.8 per cent and a good investment loan rate is under 4.3 per cent.”

Mortgage Choice chief executive officer John Flavell said some lenders are targeting particular “niches in the market” including first home buyers and owner occupiers by using bait in the form of cash back, special offers or even frequent flyer points to lure them in.

As for how frequently you should be reviewing your loan, Mr Flavell said “at least once a year.”

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