The Reserve Bank of Australia (RBA) has held the interest rate at 4.35%, 6 February 2024.
Inflation, though still high, continues to show signs of moderation as it continued to ease in the December quarter, bringing a glimmer of hope for both homeowners and business owners. Projections indicating two rate cuts later this year, suggest a potential conclusion to a challenging two-year period.
Home Loan Landscape
In November 2023, the average home loan size for owner-occupiers in Melbourne settled at $608,000 for a 30-year loan. Reflecting on the lowest average rate of 2.14% in March 2021, the following changes have occurred:
- Average home loan rate was 6.6% in 2023
- This resulted in an increased monthly mortgage payment of $1,592.96 (March 21: $2,290.09 | Dec 2023: $3,883.05)
- Affordability for a $608k loan in March 2021 has decreased to $402k
- Banks' living expense metrics have surged, exacerbating the situation.
What do the two predicted rate cuts mean for individuals based on the above?
- An extra $198.60 in their pocket per month
- An additional $23k in affordability through the banks
Looking Ahead
While acknowledging the substantial damage, the predicted two rate cuts serve as positive indicators for potential changes in 2025. It's important to recognise that new rates represent an improvement over the old rates.
Even seemingly modest numbers can make a significant impact. If your current loan is 0.5% above the new rates, two RBA drops could translate to a 0.75% to 1% reduction in your overall interest rate.
How We Can Help
Our debt advisory team is ready to assist you in navigating these changes, offering expertise in:
- Planning for future residential purchases
- Refinancing and restructuring of problematic debts
- Consolidation and paying off expensive credit cards and car loans
- Maximising debt efficiency to ensure it works as hard for you as possible.
While challenges persist, strategic financial planning and leveraging the potential benefits of rate cuts can pave the way for a more stable and prosperous future for both homeowners and business owners alike.