Interest rate cuts: How to interpret our ‘meh’ economy

If you had a few hundred dollars extra to your pocket, would you spend it?

The Reserve Bank of Australia certainly hopes you will – and they’ve just lowered the interest rate to 1% to get you there.

With further cuts putting the Australian interest rate at an ‘historic low’, there’s good reason to believe that our economy is starting to show some cracks. After all, consecutive cuts aim to kickstart a weakening economy and boost growth by motivating people to borrow to spend.

But changes to interest rates won’t just have an impact on property, and the result could alter many more aspects of your mortgage and home life than you think.

Lower interest can in theory weaken the Australian dollar, the result of which may be an increase to the price of imported goods, retail or even that trip you’re planning to take overseas.

While this would be frustrating for savers, the RBA’s most recent cut could be good news for borrowers. Lower interest rates mean lower mortgage rates, and that’s a win for existing home loans too.

According to Craig Corbett, Finance Specialist at MoneyQuest, one aim of the cut is to get people back into the property market and stop the decline in values.

“On an existing mortgage, repayments on a loan of $500,000 could drop by approximately $70 per month, depending on the reduction your lender chooses to pass on to you.”

Craig says that by leaving more money in people’s pockets to spend in the economy, the reduced rates hope to support businesses and create more jobs – and to help many Australian households to get on top of their mortgage debt.

But while rates are historically low, Craig advises to keep in mind that they will rise in the future.

“If you plan for an increase now, it won’t be a shock when it eventually happens.”

There are many ways to reduce your loan debt even faster, such as changing the frequency of your repayments, planning for future changes or shopping around for a better rate. 

For more information, call Craig Corbett at MoneyQuest or get professional advice from Prudential Real Estate: (02) 4628 0033 | campbelltown@prudential.com.au.

CLICK HERE to see an overview of Australian interest rates from 1998 – March 2019.

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