July 03, 2012
In its first decision of the new financial year, the Reserve Bank today kept the cash rate on hold. According to Australia's largest independently-operated mortgage broker, Mortgage Choice, this decision should not concern borrowers - they should instead focus on taking control of their own finances to see if savings can be made elsewhere.
"The decision to hold the cash rate at the current level of 3.5% was expected by the majority of economists and market commentators, but it is likely many borrowers were hoping for a third consecutive monthly rate cut," said Mortgage Choice spokesperson, Belinda Williamson. "The fact is that a number of Australians are still worried about the state of our economy and the impact of recent turbulence in global markets."
Compared with most world economies, the data out of Australia is strong. We are approaching full employment, our banking system is robust, inflation is controlled, interest rates are at historically low levels and borrowers are paying down debts. The contrast with many European nations could not be starker.
Nonetheless, a number of consumer sentiment surveys point to the fact that for many consumers, good economic data has not translated into renewed confidence about the economy.
Belinda Williamson said that while it was true some borrowers are still feeling the side-effects of global uncertainty, they should take comfort from what the rate decision really means, which is that the Reserve Bank does not believe that the local economy is in bad shape.
"In many ways, the Reserve Bank's decision to hold rates steady this month is a vote of confidence in the Australian economy," she said.
"Consumers should concentrate on the reality of our economic situation, and not become unreasonably focused on the global pressures. A positive view about our economy is important as consumer confidence does have a huge knock-on effect and can lead to increased activity in the housing market, construction industry, and manufacturing and retail sectors, all of which would benefit from stronger growth.
"At Mortgage Choice we take the view that borrowers should put their concerns aside and focus this energy into taking control of their finances. This means getting the best possible deal on their home loan and reducing loan repayments."
Ms Williamson went on to describe three ways in which borrowers can take control of their finances. The key is to ensure that you have the best loan in the market for your needs.
1. Take control of your lender - build a relationship with your lender, and don't be afraid to ask them a range of questions, as silly or as complex as they may be. Just because rates are on hold, it doesn't mean that you can't ask your lender for the best deal on your home loan in terms of interest rate, fees and features. If you feel uncomfortable having this conversation yourself, have an expert such as your mortgage broker do the bargaining for you.
2. Take control of your loan - there are certain features of a home loan that if used appropriately, can save you thousands of dollars and cut time off your loan term. Such features include:
- Offset account - attached to a home loan and helps to reduce the interest accumulated on the loan;
- Extra repayment options - allows borrowers to make extra repayments by putting additional funds into the loan and/or increasing the frequency of repayments; and
- Redraw facility - enables borrowers to place their income, savings and/or extra repayments into the loan and to withdraw funds when needed. In some cases this is at a cost. It is an alternative to storing money in a savings account, where the interest earned is taxable.
3. Take control of your finances by putting an expert in the driver's seat - with so many lenders and loan products in the market, it can be difficult to identify the best home loan option for you in terms of your financial goals, interest rates, fees, features and even lenders' customer service performance. A professional mortgage broker should present you with a wide range of lenders and options and can take on the hard work of comparing loans.
Ms Williamson concluded by saying that choosing a mortgage and maintaining it during the loan term can be one of the most important financial commitments many of us make. "We all like to think that we will be able to fully understand all the loan options out there and identify what is best for us, but the reality is that we don't often have the time or expertise. A reputable mortgage broker will be able to answer all your questions and/or help you find the perfect home loan to match your needs, often at no cost to you."
For further information or to arrange an interview, please contact:
(02) 8907 0472 / 0407 416 124