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If the RBA doesn't move rates how can the banks. Would now be a good time to go for a fixed rate?
Responses
Hi Jacob, the RBA rate is the cash rate. The banks raise capital to lend in a number of ways, some being cheaper. (deposits), some more expensive (bonds) and the cost of these funds is how they work out their rates.
The lenders themselves are effected by the RBA rate as it raises or lowers their funding costs but in no way does it control them. Their requirements on how much cash they need to hold also recently increased, so there is some revenue raising going on as well.
A fixed rate controls your risk, it is always a good idea to consider it an option. The deciding factor is more depending on your needs and short term plans.
Happy to discuss. Regards Ariel
Hi Jacob.
It's always a topic of great conversation this one.
The interest rates set by a bank is not solely governed by the RBA alone.
Variable rates and fixed rates are influenced by different factors.
In very basic terms your variable rate starts with the RBA cash rate.
The banks then set their base rate which is a slightly above the RBA Cash rate. Each bank has a slightly different base rate. The banks then have a margin on top of that which determines what your rate will be.
There are other many factors that influence what the variable rate will be. Loan amounts, lending ratio and size of the property all come into play here. It's all about the risk.
Then there are other external factors
For example in 2015 the government Insisted the banks have more cash reserves for investment lending and interest only lending too.
This was an influence that increased rates that were outside of the RBA movements as well as a restriction on the amount of investment lending a lender was to do.
Fixed rates are determined by short to medium term bond rates. They are very low at the
Moment and provide a great peace of mine that you know what your repayments will be for that fixed term.
There are some great fixed rates out there in always happy to share more information if you
Would like. I hope this provides some clarification for you.
Nicole :)
Hello Jacob. A large number of people ask the same question. In years past the banks towed the line in regard to rates, however they now thumb their collective noses at the RBA and move rates based on other issues such as raising capital to meet legislative changes. If you were cynical you might say that they only increase rates to improve profitability.
As for fixing rates now there is no perfect answer due to so many factors that may or may not come into play in the year ahead.
If the Aussie dollar continues to climb the RBA may cut rates in the months ahead. This might not impact on fixed rates.
A cautious approach is your best option. Possibly look at having an each way bet by fixing part of your loan and leaving some variable.
Certainly repaying debt as quickly as possible will stand you in good stead regardless of fluctuations in the economy.
Hi Jacob,
As the other advisors have suggested the banks/lenders no longer feel that following the RBA rate movements suits their funding positions and they are now tailoring their rate movements to reflect this.
The decision to fix your loan should be made after you have taken into account several restrictions that the majority of fixed rate loans have. Fixing is great if you need to have some certainty around your loan repayments and they can work really well if teamed with a variable rate to guve you some flexibiliry
Jacob, as the decision to fix needs to be based on your individual circumstances I would be very happy to step you through the decision making process if you would like to contact me on 0413 924 401.
Regards Kathy