Rates set to drop below 3 per cent

The Reserve Bank is expected to cut the cash rate tomorrow, so check you’re still getting the best mortgage deal writes Sophie Elsworth

MANY owner-occupier borrowers making principal and interest repayments should be paying a rate below the 3 per cent mark if the central bank cuts the official interest rate tomorrow.

Reserve Bank of Australia governor Philip Lowe is strongly tipped to slash the cash rate when the RBA board meets tomorrow, which would put pressure on the banks to lower their mortgage interest rates.

Dr Lowe’s speech last week on the state of the global economy warned they could not wait to cut interest rates if central banks globally slashed their rates.

There are now strong predictions of back-to-back rate cuts in October and November, which would bring the cash rate down to just 0.5 per cent.

Mortgage broking firm Finsure’s managing director, John Kolenda, said if Dr Lowe did drop the cash rate borrowers should be moving to rates with a “2” in front.

“Whenever there is a rate adjustment there should be an opportune time for someone to review their current home loan against what’s available in the market,” he said. “If the rate cut comes through, an owneroccupier rate should definitely be under 3 per cent. “Currently what’s being offered in the market is in the low 3s, so if there’s a 0.25 per cent cut it should take rates below 3 per cent.” On a $300,000 owneroccupier principal and interest loan with a variable rate of 3.24 per cent over 30 years, if there was a cut tomorrow – and it was passed on in full – this would shift the rate to 2.99 per cent. This would result in monthly repayments falling by $43 per month and save the customer $14,680 over the life of the loan. Already some smaller banks, including Reduce Home

moneysaverHQ.com.au

Loans, Mortgage House and Well Home Loans, offer variable mortgage rates under 3 per cent.

Mr Kolenda said if customers failed to get a good deal they should be prepared to contact a mortgage broker for assistance.

Online mortgage broker Uno’s chief executive officer, Anthony Justice, said rates in the 2 per cent range were likely to become more commonplace.

“With another rate drop a whole bunch of lenders could be brought into the below 3 per cent category,” he said. “If there is a cut and it is passed on they should be looking for a deal that starts with a ‘2’.”

He urged borrowers to check what rate they were paying and then hunt around to see if they could do better.

“There’s a lot of competition out there in the market from lenders so it’s a great time to think about whether your loan is any good and whether you should refinance,” he said.