Interest Rates fall by 100 Basis Points

Yes, its coming around to interest rate time again and the RBA has slashed the core cash rate again by another 100 basis points. The key cash rate is now around 4.25%, a level that matches a previous record low after the September 11 attacks in 2001. On a $300K home loan, you would save roughly around $193 per month (read the money saving tips to reduce your home loan faster) although I would suggest you keep paying this saving off your loan so you can reduce debt faster. 

Of course, with interest rate cuts come the less incentive to invest in the AUD dollar – so we will see bigger falls in the value of the AUD over the coming weeks. The incentive is no longer there for Asian nations to invest heavily in the Australia dollar and get a good return from our “once high, now low” interest rates. The dollar will fall and this will mean that imports will become more expensive, the price of overseas holidays will go up and of course (and hopefully) we will start exporting more of our locally made goods. 

Look back more than 6 months ago and such a cut would have been unheard of, in fact most people would still be staggering under the cost of petrol and holiday makers would be loving the-then almost parity in the AUD-USD exchange rate hovering around the 0.98 USD mark. Now shoot forward and we look at 100 basis point cuts as – “oh well, another massive cut” – it really is amazing what has happened in the last 6 months.

How far is it going to fall ?

I have some friends telling me they are predicting it will go as low as 2.5%, possibly even 2.25%, depending on the fall out in world markets over the next 6 months. Unless China starts churning through resources at a rapid rate, expect our exports to stagnate which means that our overall economic movement will slow down (in fact it has already!). 

Really I don’t think these rates are ‘unrealistic’ – but the big deciding factor is how the world ‘weathers the storm’. For those of you looking to secure a variable home loan, or purchase a house, seems like now would be a nice time to get your act into gear. At the rate we are going, demand for housing is going to be back on the rise because the cost of borrowing money is simply ridiculously low. 

As I stated before, don’t spend all of your interest savings on Christmas presents – instead

Give your homeloan a present, a reduction in its overall principal amount which will cut its interest burden. 

After all, you know that he or she is going to love it …. the home loan that it is!