| The interest rate rise announced by the Reserve Bank to increase the cash rate by .25 percentage points to 6.25% would come as no surprise to most people given the speculation. However it is still a concern to homebuyers, small business and the farming community alike especially given the continued upward trend of interest rates over the last five years.
We have now witnessed over the last five years a trend where interest rate movements have only been upwards which is indicated in the Reserve Bank’s Cash Rate Target. Over the last fifteen years which is a period considered as the post deregulation era it is interesting to look at the trends. In the first ten years of this fifteen-year period interest rates rose and fell creating peaks and troughs.
Looking back over those ten years from November 1991 up until December 2001 movements in interest rates saw a trend of four or five movements in either direction before the trend reversed. As a result about every two years interest rates would reach a peak or a trough. Then a movement in interest rates would tend back the other way establishing a fairly stable interest rate environment. The interest rate troughs have been as low as 4.75% and 4.5% with the lowest in December 2001 at 4.25%.
However since that low of 4.25% in December 2001 the trend has only been upwards for now nearly five years with the increase in the cash rate to 6.25% today November 2006. Putting this in the context of how much more a borrower is paying today than they were paying five years ago will be a concern to those trying to meet their loan repayments. A home loan of $250,000 at a standard variable rate of 6.07%pa with most mainstream lenders at December 2001 would have been $348.26 per week. Today factoring in the .25% increase the interest rate will be 8.07% pa a full two percentage points higher taking the weekly loan repayment on the $250,000 loan to $425.88 a week. This is an increase of nearly eighty dollars per week, $77.62 to be exact.
Loan packaging and taking lower basic interest rate loans is available to many borrowers, which can help in lowering loan repayments. Borrowers should therefore seek the widest possible advice in reviewing current loans or obtaining new loans especially those entering the home market for the first time. In today’s competitive home loan market it is important for home buyers not to rest simply on the advice of their local lender but seek the widest and most independent advice in obtaining the best home loan for their individual circumstances.
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