After the 20th month of no change to the cash rate, we are now in a new era for the Reserve Bank. Since rates have been examined on a month to month basis, we have not gone this long unchanged. And with every major economic forecaster and the RBA Governor himself, predicting no change on the horizon, it will only be commercial forces within the banking sector that will cause in angst in the near future.
Locking in interest rates currently has little relevance except to the banks themselves. If they can cajole customers to fix rates it is simply to make sure they stay around and don’t change banks for a cheaper interest rate option, or face ridiculously harsh penalties to escape.
As our economy grows due to massive population growth, I predict we will see further competition in the banking sector for your home loan business. If you lock in your rate for even the shortest of times, the savings could well evaporate very quickly if you cannot take advantage of new options from other lenders.
When looking around at other options you should always try to maximise your potential borrowings. For example, if your property is worth $1m and you owe $300,000 then when checking for another home loan, you should look at asking for $500,000 and if approved, pay $200,000 straight back into the loan. This will give you a redraw facility under most lenders that makes it easier to access emergency funds or take advantage of purchasing an investment property easily.
As the property market is starting to level out, now is the time to see what your borrowing capacity is. Just remember there is good debt and bad debt. Borrowing money to purchase a growing asset can be the smartest decision you will ever make.
If you are considering buying or selling a property give us a call to have a free no obligation chat about how we can assist you.
Ian James
Director JPP Buyer Advocates