It has been 18 long months since the Reserve Bank of Australia (RBA) made a change to interest rates…but yesterday they reduced rates by 25 basis points to 2.25 per cent.

In the preceding days, there was much hype in the media regarding the first interest rate decision for the year, and few leading economists tipped a rate reduction.

The intention of the RBA in making a rate reduction is to stimulate spending – no doubt you’ve seen lower petrol prices lately, but those alone have not been sufficient to lift our economy.

What does a rate reduction mean to you? 

It all depends on the amount of your mortgage, who you have your mortgage with and how much of the rate reduction they pass on – by way of example: if your lender passes on the full reduction, and you have a mortgage of $300,000, you will save approximately $47 – $50 per month.

Should I change lenders if I don’t receive the full benefit of the rate reduction?

While changing lenders is certainly worth investigating…the final decision will depend on a number of factors such as:

• whether your loan is fixed or variable
• the effective interest rate (you should never compare advertised rates as they usually don’t take into account other fees and charges)
• the relationship you have with your lender

The Tax Chic’s tip:

If financially viable for you, it may be prudent to “ignore” any interest rate reduction provided by your bank and maintain your repayments at their current level – this will help reduce your overall interest and the life of your loan – just a thought!

Regards