Taking out a home loan is an essential part of purchasing property for most Australians, and there are a number of different factors that have a bearing on the success of many people's applications and subsequent mortgage repayments.

However, one of the main external factors that should be understood when it comes to taking out a home loan is the relationship your finances have with the county's official cash rate.

The Reserve Bank of Australia is responsible for taking care of the country's inflation, by adjusting the official cash rate depending on the need of the nation.

It is able to either raise or lower the cash rate through a measure known as basis points. The cash rate itself is used to set the amount of interest that banks and other financial institutions must pay in order to borrow or lend funds.

Simply put, if the cash rate is low, it costs the banks less to lend out money for the needs of the consumer, including home loans. If the cash rate is high, the opposite is true.

This affects the average consumer by altering how much interest a bank has to charge on loans in order to make the transaction worthwhile.

As the cash rate lowers, the tendency is for banks and lenders to lower their own interest rates – effectively "passing on the savings" to the consumer.

Therefore, it makes sense for anyone interested in taking out their first home loan to pay attention to the monthly cash rate decisions and try to time their home loan adoption with a relatively low, competitive interest rate period. 

You can contact a Smartline Mortgage Adviser on 13 14 97 for home loan advice. Or complete our call request form and we’ll call you!

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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.