It goes without saying that homebuyers love low interest rates. The lower the interest rate the less the mortgage repayments on a particular house, right?
Lower interest rates also mean borrowers can service a bigger loan. In a competitive housing market that can push up prices, as we have witnessed this past decade.
So what’s really going on? Have low interest rates been good or bad for homebuyers?
The Reserve Bank of Australia (RBA) and the major trading banks may play the most visible role in setting interest rates, but in many cases they are being reactive rather than proactive.
A wide range of external factors feed into their decision-making process, including in no small part, our collective behaviour as investors and savers, borrowers and consumers. Then there’s the rate of inflation and wages growth, foreign currency exchange, the economic health of our trading partners, and the interest rates paid by local banks to borrow money from overseas.
Suddenly it’s not so easy to figure out where interest rates are headed, even in the short term.
Access our Infographic that explains how falling interest rates may affect housing prices
With so much uncertainty surrounding who now has more control over setting mortgage interest rates – the Reserve Bank or the banks – it is timely to think about your loans and whether they are structured to suit your needs into the future. One of the most obvious considerations for your home mortgage is whether a fixed or variable rate loan is best for you.
It is said that Aussies will bet on anything – even two flies crawling up a wall. Our bets have become a bit more sophisticated and now it seems the latest “bets” are taken between economic commentators on what the Reserve Bank of Australia (RBA) board will do to the cash rate on the first Tuesday of every month. The betting odds are pretty low so it won’t be commentators who will lose too much; it’s the mortgage holders who have more skin in this game.
Paid off your mortgage? Woo-hoo! Break out the champagne and celebrate the freedom you must now feel! But once the dizzy excitement has passed, what will you do next? What will you choose to do with your new found house equity?