After a long wait, the Reserve Bank has finally handed down a rate cut. But what happens next, and when will you actually see a difference in your repayments?
What Happens Now?
When the RBA moves rates, banks do not always automatically follow suit. They will make their own decisions on how much of the cut (or increase) to pass on, and when.
This time around, the four major banks have confirmed they will pass on the full 0.25% cut:
ANZ, NAB and CBA – Effective 28 February
Westpac – Effective 4 March
Some smaller lenders can move faster (or slower). Emerging no-frills lender Athena, for example, was quick out of the blocks and has already applied the cut to its rates.
What Does This Mean for Your Repayments?
Interest-Only Loans
If your loan is interest-only, your repayments will drop from the date your lender applies the new rate. For example, CBA interest-only customers will see the reduction from 4 March onwards. For Athena customers, the lower repayments are already in play.
Principal and Interest Loans
If you have a principal and interest loan, things work a little differently. In most cases, your repayments will not automatically drop. Instead, more of your repayment will go towards reducing your loan balance (principal), and less will go towards interest charges. In short, you will be paying off your loan slightly faster. Lenders will periodically review customer repayments on their own schedule, and you will likely receive a notification of repayment changes once that review has taken place. You may have also noticed that repayment increases following previous rate rises were not always immediate.
If you want to immediately reduce your scheduled repayment in line with the rate cut, you can contact your broker or speak with your bank about adjusting your minimum repayment.
What Is the Outlook from Here?
Put simply, the outlook remains uncertain.
Some market forecasts suggest we could see two or three more cuts in the next 12 months. Reserve Bank Governor Michelle Bullock doesn’t share that confidence – “Today’s decision does not imply that further rate cuts along the lines suggested by the market are coming,” she says. “The board needs more evidence that inflation is continuing to decline before making decisions about the future path of interest rates.”
And with rising global uncertainty in play, including trade tensions, predicting what happens next is no easy task.
For now, enjoy this little bit of relief, and let’s keep a close eye on what comes next…
Written by Andrew Whelan, General Manager – AP Group
AP Group are the leading pharmacy experts in Australia and specialise in helping first time buyers find the right pharmacy and secure the finance to support their purchase.
We connect existing owners with over 5000 ready and eager investors via our cutting-edge online Data Room. Our Data Room keeps confidential listing data secure and allows buyers to make informed decisions on each of our pharmacies for sale.
AP Group have built connections with all the major banks and a host of smaller lenders, ensuring that first time pharmacy buyers find a better deal.
About the Author:
When Andrew Whelan is not out pedalling his bike or looking after his two marvellous kids, he’s pedalling through pharmacy finance and strategy development.
Having been with AP Group since the beginning, Andrew has more than a decade experience in pharmacy and is an asset to the sales and finance division. He’s a numbers wizard, people person and sustainability champion — leading AP Group to achieve official Carbon Neutral Certification with Climate Active.
Before AP Group, Andrew spent more than a decade in the telecommunications and media industry including 7 years at Telstra in a variety of senior management roles and 3 years in the United Kingdom managing the commercial function for the British Sky Broadcasting — a time where it was the fastest growing broadband provider in the UK.
So it’s no surprise that he is well equipped to help customers with some of the biggest decisions they will ever make — buying a home or investing in a pharmacy — and helping to show them what’s truly possible.