Why latest rate cut matters the most

EVERY home loan customer should pay attention to this month’s cash rate cut like no other.

The Reserve Bank of Australia governor Dr Philip Lowe failed to surprise anyone last Tuesday when he dropped the cash rate to 0.75 per cent.

It’s now at a level that is almost unfathomable but one that cannot be ignored.

And from it there are some vital points that borrowers should take note of because it’s going to impact hip pockets for some time yet.

This is why it’s time to sit up and listen to the central bank and take action to save cash.

STINGY BANKS

The days of the banks passing on the cash rate cuts in full are almost over.

The big four’s profit margins are being squeezed like never before and it means you, the borrower, won’t be receiving the full chunk of the cash rate cuts in the months ahead. Evidence in point – the nation’s big four banks failed to pass on the 0.25 per cent cut in full this time around.

Lenders think they can get away with not passing on the full cash rate cut and in many cases they probably will.

You can change this, but it involves taking matters into your own hands.

RING YOUR LENDER

If your financial institution has failed to pass on the entire cash rate cut, phone them.

Trust me, they won’t want to hear from you.

Many people won’t bother to do this so you need to buck that trend and fight for some serious savings for yourself.

Ask to speak to the mortgage retention team and ask why they haven’t passed on all of the cut. Tell them you want more of a drop. If you don’t ask, you won’t get.

FORGET FIXING

Economists are tipping a couple more cash rate cuts are to come – AMP Capital chief economist Shane Oliver expects another drop on the same day there’s the race that stops the nation, Melbourne Cup.

And it doesn’t end there – he is tipping another cash rate cut in February.

That would bring the cash rate down to just 0.25 per cent.

So forget about fixing your home loan for now.

Variable rates are going to continue to come down, so locking in makes no sense, or cents for that matter.

DON’T GET SUCKED IN

Some lenders have slashed investor interest-only interest rates by larger amounts than all other types of loans and there’s good reason for this.

The investor market has dramatically slowed and banks need to get this part of their loan book moving again.

So that involves offering incentives to investors who fail to pay down the principal. But don’t be fooled by this. If you’re an investor who is relying on capital growth and just meeting the interest repayments, then it means you will never pay off that property.

The days of soaring house prices are over and this strategy is no longer in vogue.