Cash Rate Cut to 0.1%

The Reserve Bank (RBA) has dropped the official cash rate by another 15 basis points to a historical low of 0.1% in an attempt to boost Australia's economy.

The move from 0.25% to a near-zero rate follows the second lockdown in Victoria that hit our nation's economy hard, as well as mounting pressure on the central bank to do more to support employment.

RBA governor, Philip Lowe said these measures would help to address the high rate of unemployment, which he described as an important national priority. Lowe further states that the country's unemployment rate was likely to remain high, although will peak slightly below 8%, rather than the 10% previously expected. He said it was forecast to drop to 6% at the end of 2022.

RBA outlined it did not expect to raise the cash rate over the next three years until actual inflation is sustainably within the 2% to 3% target range, which will require wage growth and significant gains in employment. Inflation is forecast to be 1% in 2021 and 1.5% in 2022 according to RBA. This will provide homeowners and businesses with some certainty over their individual borrowing rates in the near term.

According to Dr. Andrew Wilson of My Housing Market, Australia’s economy is turning a corner-

"Recovery has proved more positive than expectations and will continue to surprise on the upside with the reopening of borders fuelling a tourism and hospitality surge. The underlying indicators are strong for Australia to lead the world in a recovery."

How will the rate cut affect homeowners and the housing market?

The rate cut will assist Australia's economy to recover by lowering financing costs for borrowers. Low rates for an estimated three years means that it is as cheap as it has ever been to borrow money. This is great news for those who are paying down a mortgage and is encouraging for home buyers wanting to enter the market.

The rate cut will help to boost the residential property market that already appears to be in recovery mode which can provide a powerful charge to economic recovery. The housing market has a broad reach into other areas of the Australian economy and so the boost a cut provides should not be underestimated.

Let's say a homeowner with the average mortgage of around $480,000 were to drop from the current average variable rate of 3.99% to 3.84%, they would pocket an extra $495 per year. Over the course of a 30-year loan, this would save them almost $15,000 in interest.

There is no doubt the rate cut can save homeowners plenty of money on their mortgage. Experts are suggesting that if your lender isn't going to pass on the savings, then it is time to refinance to a more competitive deal.

Now is definitely not the time to be complacent. Take action and use this opportunity to reduce your mortgage.