Interest Rate Changes – What Impact Will They Have

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There has been a great deal of media hype regarding the reserve banks recently announced interest rate change on the 3rd of February 2015

Unlike many of the previous interest rate announcements, a vast majority of lenders passed the rate cut in full to their home loan products, with some bank even passing on a greater amount than the 0.25% announced by the Reserve Bank.

While most people will look at how an interest rate reduction will save money on their mortgage repayments, it is worth noting what lies behind this decision, and what will be the longer term impact of the Reserve Bank’s announcement.

Typically the Reserve Bank will look to reduce interest rate as a way of increasing economic activity, by putting more money in people’s pockets (by way of lower loan repayments). The theory is that this will allow people to spend more money on everyday items to help lift the economy.

Since the Global financial crisis, we have seen a trend where people have taken the money saved from an interest rate cut, and used this as an additional repayment on their home loan. Or have simply saved this money for a rainy day. As a result of not directly spending these savings, the impact on the economy from an interest rate cut maybe having a smaller impact that it has in the past.

Time will tell what impact the recent interest rate announcement will have on the housing market and the broader economy as a whole.

For more information on interest rates, and how these can impact on your home loan, feel free to contact one of the friendly representatives at Top Mortgages on 1300 308 225

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