How will lower interest rates affect you?

Interest-RatesAfter 18 months of interest rate stability, the Reserve Bank of Australia made the move last week to cut the official cash rate by 25 basis points to a record low 2.25 per cent.

While a lot of people are probably jumping for joy at the news of lower rates (particularly those with home loans) an interest rate cut isn’t all good news.

There will be a few outcomes that lower interest rates will bring:

The good news

–       Cheaper home loans – Lower rates will help make mortgages more affordable, bringing more activity to the property market. This is particularly good news for current homeowners or those looking to sell.

–       The local economy will get a boost – Cheaper interest rates help boost the local economy and will hopefully encourage businesses to hire more staff, and help reduce the country’s unemployment rate.

–       Good for local tourism – Lower interest rates lead to a lower Australian dollar, which while not all positive (see below) it is good for the local tourism industry as it makes it cheaper for overseas tourists to travel around Australia.

The not so good news

–       Lower AUD dollar – sure a lower dollar is good for the tourism industry and also for Australian businesses that export goods, but it’s not so good for those who import. International products will go up in value for Australians, so if you like to buy products from overseas then it’s a good idea to buy now before you notice price rises.

–       Escalating property prices – More buyers will be entering the property market looking to take advantage of lower interest rates. Unfortunately more buyers in the market will push property prices up.

As you can see, the move to lower interest rates comes as a bit of a double-edged sword for those who are interested in buying a home. While you can’t control rising property prices, you can make sure that you get the cheapest home loan deal possible. If you’re thinking about buying, make sure to talk to different lenders and try to get the best rate so that you’re not paying more than you should be.

For those who are thinking about fixing in their home loan at the current low rates, you may want to hold off a little longer as it is speculated that interest rates will drop again sometime soon.

What do you think of lower interest rates? Are you happy about the news?