If you're thinking about buying a home, it pays to understand why you are paying a certain interest rate. If we look at the history of interest rates, you may be able to gather a better understanding of what you may have to pay throughout the life of your loan.
The importance of interest rate trends
Why is it so essential for you to do your research when it comes to interest rates on home loans? One reason is to make sure that you're getting a fair rate when you compare lenders. Accessing information about how interest rates have changed in recent history will give you a good idea about how much you should be paying when you apply for a mortgage.
Another reason to access this information is to find out whether it would be wise to opt for a variable-rate mortgage. The interest rate on this type of mortgage changes along with the market rate. If you're buying when interest rates are high, you may want to opt for a variable-rate mortgage to take advantage of decreasing rates in the future. However, the only way to know whether interest rates are likely to drop is by learning more about how these rates have changed in the past.
Historical interest rate trends
Interest rates have been gradually decreasing since the early 1990s. In the early 1980s, interest rates climbed as high at 17.5 per cent. Thankfully today, the story is a little different. Today, many of Australia's lenders are offering variable rate mortgages with interest rates of just 5 per cent.
The Reserve Bank of Australia's official cash rate is set at 2.5 percent. This is the lowest the cash rate has been in decades.
But it is important not to confuse the cash rate with the interest rates offered by Australia's lenders.
The cash rate is monitored and set by the Reserve bank of Australia to ensure the stability of the Australian currency as well as the economic prosperity of Australians.
While the official cash rate set by the Reserve Bank can influence mortgage rates, it is not the only factor at play when Australia's lenders are setting their mortgage rates.
Today, Australia's lenders are offering some of the lowest interest rates in decades, making now an excellent time to jump onto the property ladder.
To compare the interest rate on your current home loan or see how you could benefit from a fixed or variable interest rate, look at our useful calculators.