Australian home buyers are currently facing an unprecedented situation. In October 2019 the Reserve Bank of Australia announced that they were dropping the cash rate to an all-time low of just 0.75%, a move which resulted in rate cuts by lenders across the country. In light of these record low rates, what should you do? Some banks seem to be urging home buyers to lock in these low interest rates with a fixed rate mortgage. But there’s also talk that the RBA could drop the cash rate even further, making it difficult to know whether a fixed rate or a variable rate is the right choice for you.
Is Another RBA Rate Cut Likely In 2020?
The RBA meets on the first Tuesday of every month (excluding January) to decide on whether the cash rate should be raised, lowered or left as it is. While many predicted that February’s meeting would result in the cash rate being dropped to just 0.5%, unemployment figures for the period were better than expected, resulting in the RBA’s decision to leave the cash rate standing at 0.75%. In light of this, is it likely that the RBA will lower the cash rate any time soon? According to multiple experts, the answer is yes:
- St George Economics predicted in late 2019 that the cash rate will reach just 0.5% early in 2020, based on zero wage growth, the uncertain state of the global economy and below average national economic growth.
- Westpac Chief Economist Bill Evans released a statement in early February 2020 verifying that Westpac anticipates “the Reserve Bank will delay its next cut in the cash rate to April with the final cut to 0.25% occurring in August.”
- CommBank Group economists also estimate that the next RBA rate cut will occur in April, in light of the most recent employment statistics.
- NAB Chief Economist Alan Oster suggests that the next rate cut will happen in April, followed by another one around the middle of the year.
To Fix or Not to Fix? That Is The Question
With the cash rate at a historic low, some lenders are currently offering home loans with amazing fixed rate terms. But while this kind of offer may seem enticing, the reality is that locking in a fixed rate now may result in you missing out on a lower rate in the coming months. While it’s true that the decision on whether to take up a fixed rate offer always involves an element of chance, the current economic climate is strongly leaning towards further rate cuts in the very near future.
It’s also important to remember that lenders are ultimately in the business of making a profit (something that was highlighted during the recent Banking Royal Commission). If they’re advocating a fixed rate home loan, then it’s worth considering who is going to benefit the most from this kind of arrangement – you or the lender?
In saying all that, in some circumstances fixed rates make a lot of sense. Also, there may be options to improve your current variable rate situation to allow you to take further advantage of the low interest rate environment and any further cuts. The idea is to save yourself money instead of adding to the banks massive yearly profits!!!
If you’d like expert-help in determining whether a fixed rate mortgage is right for you, then it might be a good idea to speak with one of our mortgage brokers at Sunshine Coast Financial Solutions for impartial advice that you can trust. We’d be happy to help!