Rate cut tipped

Good news for borrowers

THE cash rate is tipped to not only drop today but begin its march towards an anticipated and unprecedented level of 1.5 per cent.

For home loan customers mortgage interest rates with a “3” in front appears imminent.

The Reserve Bank board meets today for the second time this year and is widely expected to drop the cash rate from 2.25 per cent to 2 per cent, the lowest in Australia’s history.

The high unemployment rate, China’s softening economy, the mining sector’s lead on a bigger than expected fall in business investment and a high Australian dollar are fuelling the expected drop.

But AMP chief economist Shane Oliver expects further decreases on the horizon and home loan interest rates to plummet below 4 per cent as borrowers continue to surge ahead in their repayments.

“It wouldn’t surprise me if we saw the cash rate at 1.5 or 1.75 per cent,’’ he said. “Those people who already have a mortgage are choosing to pay it off as quickly as they can.”

Home loan customers are on average more than 24 months ahead on their mortgage repayments.

Home loan comparison site canstar.com.au figures show on a $300,000 30-year home loan the lowest average standard variable rate is 4.19 per cent, making monthly repayments $1465. At 4 per cent monthly repayments drop to $1432.

Aussie Home Loans executive chairman John Symond also expects a rate drop today and says homeowners will be likely to enjoy more falls in the coming months.

“I think there’s probably another two rate cuts left,’’ he said.

He says in the next to four to five months the cash rate could fall to 1.75 per cent, but doesn’t think this will dramatically impact property prices.