What does the “cash rate” really mean?

August 13, 2015
Samantha Korzeniewski

And how does it affect my home loan rate?


Who - The Reserve Bank of Australia (RBA) is the Australia's central bank and is responsible for keeping track of the country's official cash rate

What - The “Cash rate” is basically, the interest rate that financial institutions pay to borrow funds in the money market on an overnight basis from Authorised Deposit Taking Institutions (ADI’s) also known as banks, building societies and credit unions.

Why – In a nut shell....changing of the cash rate is to help manage the country's economic inflation. This is an effort by the RBA to influence the banks deposits, bank rates, bonds and stocks, mortgages etc. The banks then choose to adjust rates according to the set cash rate announced.

When - On the first Tuesday of the month. The rate is announced after the meeting held by RBA, and has been since 1998.

How does this affect my home loan - A change to the cash rate doesn't necessarily mean a reflective change to your home loan. Although when the banks do decide to make a change, we all have our fingers crossed for the rates to drop.

Rate cuts on an average $300k home loan could cut off roughly $48 for a .25% decrease, and up to $189 with a 1% decrease.

Given different economical circumstances, we need to remember the rate can always go the other way – which means a possible increase on your monthly home loan repayment. Therefore, it’s very important to keep your finger on the pulse and make sure you are on top of your repayments. Let your mortgage broker shop around for the best rates and products possible at that time.

It could be the time for you to get a health check on your mortgage and possibly refinance to another lender, look at fixed rate options or different products. There are a lot of options that can save you money and time on your mortgage.

To have a chat about your options, give Deslie a call.


M 0418 715 286 | E deslie.taylor@mortgagechoice.com.au | W mortgagechoice.com.au/deslie.taylor

Posted in: Interest rates

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