Concerns of an overheating housing market has not stopped the RBA from leaving the official cash rate unchanged at a record low of 0.1% at its first board meeting of the year.
Even as the economy continues to bounce back faster than expected, RBA Governor Philip Lowe has remained firm that interest rates will remain near zero for years to aid the recovery.
“The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range,” he said.
“The Board does not expect these conditions to be met until 2024 at the earliest.”
But while economists widely agree that rates aren’t rising any time soon, there are questions over whether the RBA might eventually be forced to revise its time frame, as the housing market roars back to life. Record low interest rates and government grants like HomeBuilder have led to a surge in new home loans, while home values hit a record high in January according to Corelogic.
What it means for homeowners
For now, the RBA is standing firm with a decision to keep rates at record lows. Smartline Mortgage Advisers Sam Boer says that provides refinancing opportunities for those with a mortgage.
“Borrowers may find they can borrow more on a lower rate, which may be useful for anyone wanting to upgrade or renovate their home,” he said.
“Banks are still negotiable on their rates, they don’t want to lose customers right now, and a number of lenders have been offering some amazing deals.”
Check in on your mortgage
Mr Boer says banks are still competing for borrowers, which gives consumers some power in negotiating rates.
“If your lender hasn’t reduced your rate in a while and you feel they are no longer competitive, it’s a great time to talk to your mortgage adviser about potentially refinancing with a lender who is.”
Borrowers with a variable mortgage rate are unlikely to be hit with big costs to refinance, unlike those already locked into a fixed rate mortgage, and may be able to get a better deal.
Variable vs. Fixed
If you don’t need the flexibility of a variable rate, Mr Boer says homeowners could be better off with a fixed rate loan.
“Fixing your rate can offer the added benefit of giving you certainty with your repayments, which can help you budget for the future,” he said.
“So long as you aren’t planning on changing your loan during the fixed period, in which case you can be hit with high exit fees.”
What it means for first home buyers
While record low interest rates won’t help first home buyers get into the property market, Mr Boer says it should mean they can access a more competitive rate once they are ready to take out their loan.
“First home buyers should make sure they speak to an experienced mortgage adviser who can provide you with a number of options from a range of lenders,” he said.
“There can be large differences in the rate you get from different lenders.”
DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.