I hope you have had a restful start to the 2016 financial year, unlike what we have been seeing on the local stock market or in China and Japan in recent weeks. Japan has just announced negative interest rates, and in line with European markets, which virtually means you have to pay the banks to have your money deposited with them…… go figure!
What does this mean for our market? The Reserve Bank meets tomorrow and rates are expected to be placed on hold, however if the world markets continue to be spooked by China, the ripple effect could mean another rate cut here. What is interesting is how this will be managed by the “Big Four” Banks, as I read a newspaper report recently that they were likely to raise not cut rates to meet the costs of their additional capital requirements.
My view over the next 2-3 months is that rates will stay on hold, but the tiering of interest rates will be more prevalent to the market and what this offers to the consumer. When I say tiering I mean different interest rates for home and investment loans, interest only and principal and interest loans. This also extends to the Reserve Bank reducing rates but the Big Four Banks leaving rates as is! Currently we are seeing somewhere between 0.50% and 0.80% in the difference of a principal and interest home loan product and a interest only investment loan, so the tiering of rates can have dramatic implications for your mortgage payment.
My suggestion to mortgage holders is to either take some insurance out by having a portion of your loan fixed as there are some great low historical rates on offer, or by switching from interest only to principal and interest to take advantage of lower rates. And remember if you have moved into your once previous investment property and now call this your place of residence, ensure that you get the benefits of the lower rates.