How to Reduce your Interest Bill after RBA Interest Rate Decision


how to Reduce your Interest Bill after RBA Interest Rate Decision

This afternoon, as expected, the Reserve Bank of Australia (RBA) again decided to maintain our 1.5 percent record low interest rate level.

Following is my commentary on the ‘WHY’ behind their decision and a valuable offer to have MRD undertake a review of your existing loans (and financial structure) to look for ways we can add value and save you money.

I am consistently surprised by the just how ‘taken back’ many clients are when we show them the extent of savings that are available to them and how a change to their financial structure may reduce their tax liability and allow them to pay off their home loan in record time.

So, if you want to keep more of your hard-earned money, pay less interest to banks and be rid of a mortgage sooner, request we look at your current arrangements >>>here.

Housing prices/affordability, has been the topical flavour of recent months. The cost of housing in capital cities has risen by close to 10 percent since mid 2016 when the RBA cuts official interest rates (May and August 2016).

It’s an unfortunate reality that the question of what to do with interest rates (Australia-wide) has been influenced more by housing price gains in Sydney and Melbourne; up by around 13 percent since mid 2016.

Perhaps interest rates would be better determined by postcode, but that’s a discussion for another time.

Inflation had been (too) low for about 18 months or more, raising concerns that Australia may slip into a time of deflation. Inflation is now moving higher, however, back to the ideal target range that the RBA has been charged to keep it at; i.e. between 2 percent to 3 percent.

When we dig a little deeper we discover that this (welcomed) increase in inflation has resulted largely from a 6 percent uplift in petrol prices and a 2.5 percent administered rise in the cost of electricity. Add to the above modest wage growth rises and the real picture begins to take shape.

Personal demand, and that of households, is still considered to be weak and the inflationary increases are not indicating an increase in consumer spending.

Therefore, there is absolutely no indication that interest rate rises are in the RBA’s sights any time soon.

According to CoreLogic’s home value indices, housing prices in our capital cities remained flat during April, indicating that the Sydney and Melbourne housing markets may be very close to, or have already reached, their peak in this current housing market cycle.

Increases to interest rates, outside of any RBA decision, in the recent past has come about as a result of the Australian Prudential Regulation Authority’s (APRA’s) focus on slowing interest only lending.

So while there is plenty of credit about, regulations restrict what lenders can make available to the investor market, limiting investment credit growth to 10 percent annually.

The RBA would welcome a slowdown to the (Sydney and Melbourne) housing market(s) and, once there’s a clear trend to evidence slower capital growth and lower credit demand, the RBA is likely, in my opinion, to reduce the cash rate further (i.e. assuming low inflation and economic growth continue).

The past 18+ months has seen much change in and around lending policies affecting home owners, property investors and those looking to establish a self managed superannuation fund (SMSF) for the purpose of purchasing property by using their superannuation balance to cover the deposit and costs.

We recommend that you have us review your existing loans and financial structure every year due to changes to lender’s product offerings and government policy. The extraordinary level of change to lending over the past couple of years makes now a time you should absolutely take up this review offer.

What if we could value add to your situation and save you thousands of unnecessarily spent interest dollars; you would want that regardless of how busy you are right now, wouldn’t you?

To request this review of your loans and financial structure, simply send us the best time and number to contact you on, and type the word ‘REVIEW’ into the comments field >>>here.

If it’s easier call 1300 883 854 and ask to speak with Robyn.

Partnering with you for your investment success,

Nick Lockhart