It doesn’t get a lot of media attention, but there has been a lot of action going on in the bond markets in recent months.
This relates to the speculation on where interest rates are heading.
Overseas interest rates are on the way up which impacts the cost of borrowing for banks in Australia.
We saw the UK lift their interest rates recently for the first time in 10 years, whilst the US Federal Reserve continue to lift their rates with predictions another four rate rises could occur in the USA over the next year.
The scene in Australia from the Reserve Bank meeting minutes is that they do not expect inflation to rise sharply anytime soon, however bond markets are pricing in a 70% chance of an increase in interest rates this time next year.
It is important to note that funding for the Australian Banks is sourced from both local and overseas sources.
This means that the Reserve Bank monetary movements are no longer the only influence on interest rates that Banks offer to borrowers.
As a result, this is why we see can see interest rate rise even if the local Reserve Bank have not changed their rates.
Put simply, the banks cost of ‘money’ is higher than it previously was.
Four Ways This Can Impact You
i) Cost of borrowing increases, eg. car loans, credit card debt, home loan mortgages, etc
ii) Savings accounts interest rates may increase
iii) Term Deposits & Bond yields may rise meaning greater income streams
iv) Bond prices fall. As higher bond coupons
How to Reduce Your Interest Rate
Ask
Just recently I read the Governor of the Reserve Bank was quoted in the Financial Review:-
“I say this to everyone: if you are unhappy with the interest rate you are getting, go to your bank manager and ask for a lower one; because when I tell people this they actually come back and say ‘yeah, it actually worked’.”
“If you’re a good quality borrower you can get a good deal.”
Shop Around
Once you have your own position and know your interest rate, then shop the market. You can do this online or email us for our in-house mortgage broker Peter Taniane to assist.
Check Variable vs Fixed Interest Rate offers
It may be worth checking if there’s any special offers available.
Look at All Features
As a fan of monitoring cashflow, check whether your bank now supports daily budget tracking. Many do.
Is It Worth Your Effort?
On a $400,000 loan, a 0.5% interest rate could save about $112 per month.
Over 25 years, that equates to a saving of $33,594. It’s quite a significant sum for a few hours work of checking what interest rate you’re paying now.
