home loan rates
As either an investor or a home owner it’s imperative to have some idea of the way rates will trend over the short and medium term.
That of course is easier said than done. For example news bulletins every week second guess the direction and scope of changes in the cash and lending rates. They probably get it wrong as often as they get it right so how can an individual hope to predict things accurately and with a fair degree of confidence?
One of the answers to this lies in understanding the relationship between home lending and inflation as well as home lending and employment statistics.
Historically there has long been a very clear and demonstrable link between high inflation and high interest rates. It’s weird at first sight and even seems counterintuitive that the Reserve Bank would use high interest rates to help curb inflation and yet that’s precisely what happens. Logically higher interest rates are an impost on homeowners thus adding to their cost of living and fuelling the inflation that the measure was designed to curb. The general theory is that inflation is partly caused by an oversupply of money in the economy and the answer is to limit that supply of money by tightening ( raising ) housing rates by raising the official cash rate.
It has to be said that this has proved reasonably effective in the past and Australia has enjoyed sustained growth in the property sector when many other economies have nose dived.
As mentioned another factor in interest rates is the unemployment level and as a general rule high or rising unemployment often flags rising interest rates as well.
We mentioned that the supply of money was a factor ( inflation ) and Australian interest rates are particularly susceptible to changes in world commodity prices. That’s because the Australian economy is a major exporter of commodities such as coal and iron ore. A booming commodities market means inflationary pressures and generally upward pressure on interest rates.
Initially interest rates are broadly controlled by the Reserve Bank of Australia and banks as a rule take their lead from that benchmark which is reviewed regularly. As you will be familiar with hearing in the media, banks do not always pass on the full interest rate cut immediately and yet may often include a rate rise much sooner.
Given that a home loan is a far more static product and much harder to extricate from than say a personal loan, it is wise to have a home loan product that has as much flexibility as possible. That way you can cope with or benefit the most from these monthly or quarterly changes in home loan interest rates.
The Reserve bank will often drop rates or at least pause them during times when the economy is sluggish or becoming recessionary so knowing the trend in the economy will give you an insight into the direction that rates will take as well. to find the best home loan rates check out CBA the commonwealth bank of australia
When comparing interest rates at any given time you need to make sure that you are comparing like with like. You should know the APR or actual interest rate as opposed to honeymoon rates and the like. You also need to factor in the conditionality of any interest rate deals. For example there may well be certain penalties as well as features and benefits beyond the mere rate itself, that may make a rate deal more enticing or more onerous.