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The Reserve Bank of Australia (RBA) announced this month that it will be keeping rates at a low of 2.0 per cent following the rate cut in May 2015. It may come as a surprise to many, especially since just last year, a good majority of analysts were expecting rates to start climbing this year. Many people are wondering if now is the right time to refinance and take advantage of these low rates or whether to wait in case the rates drop even lower.

How Low will It Go?

Of course, there’s no telling exactly if and when the RBA might decide to cut rates further. Remember, rates are supposedly on their way up already according to statements by analysts last year. However, there are indicators that there’s still room for further cuts, if necessary.

In his May 2015 statement, RBA Governor Glenn Stevens said that, “the board will continue to assess the outlook and adjust policy as needed to foster sustainable growth in demand and inflation outcomes consistent with the inflation target over time.”

What it could mean is that, depending on how the economy performs, the RBA might cut rates further. But that’s a big if. Because of that, it’s important that you read the news regularly and keep track of the country’s economic data as these will help give you a good insight into where the economy might be heading as well as the following interest rates.

What the Low Rates Mean for You

With rates at a record low, it means that borrowing money from banks and other lenders can be very affordable. If you’re thinking of buying your first home or building up your portfolio of investment properties, then now may be the right time to get into the property market.

Take advantage of the fact that rates are low, and interest repayments are lower than they have ever been to get into the property market. It is worthwhile noting, however, that each lender have different rules on what you can borrow and what interest rates apply. It is best to use a broker to do the legwork for you and find the right lender for your situation.

How to Take Advantage of the Rate Cuts

The low of 2.0 per cent is considerably low already, but remember this is the cash, not what you are receiving from the banks. If you are thinking of taking advantage of the low rates, here are a few ways to do it:

1. Switch loans.

Are you still stuck with an old loan that no longer suits your needs and circumstances? With the announcement made by the RBA, now may be the right time to switch loans. You could switch to a loan with a lower rate, or one that will allow you to enjoy the lower rate if you’re unable to do so with your current product.

For example, if you currently have a fixed rate loan, then you might choose to switch to a variable rate loan, so that you will be able to take advantage of even better rates should the RBA announce more cuts in the future. Alternatively, you can also fix your rate, which we discuss further. It is important to keep in mind, however, that fees do apply so it is best to speak to a broker before making any big decisions.

When switching loans, you don’t have to move to a different lender immediately. Speak to one of our advisers regarding your options and whether they can put you in touch with a lender that’s offering a better deal or whether they can discuss reducing the rates on your current loan. Just keep in mind there may be fees and charges involved when switching loans, so it is best to weigh up all the options.

2. Fix your rate.

Fixing your interest rate will allow you to enjoy these low rates for a much longer time, mostly likely even after lenders have increased their rates. However, a fixed rate loan also comes with its disadvantages. For one, you may not be able to enjoy even lower rates if the RBA and your lender decide to cut them after you’ve signed up for a fixed rate loan. Another is that it has more limitations compared to a variable rate loan, such as in the number of repayments you can make every month.

3. Keep your repayments the same.

In this strategy, you will be paying off more of your mortgage without actually spending more on it. The reason behind this is that with the lower interest rates, a bigger portion of your repayments will now go to the principal. This then translates to bigger repayments than you were making in the past. The advantage of course is that you will be able to pay off your mortgage sooner.

There really is no telling exactly where the rates will be heading in the coming months. However, by keeping track of economic data such as inflation, and by reading reports by analysts on the subject, then you’ll be able to predict more accurately whether rates will go down again, stay steady, or go up.

If you are thinking of entering the property market, re-mortgaging or looking for an alternate lender, contact our Finance Brokers for a complimentary consultation to discuss your financial options.