Thursday 01 December 2011

It seems Santa has come early, as home owners and retailers are cheering at the announcement of a 25 basis point reduction in interest rates, bringing the official cash rate to 4.25 per cent.

This is the second consecutive month of cuts, as the RBA aims to stimulate the Australian property market and improve confidence in the Australian economy. With no board meeting now until February, the cut comes as an early Christmas present for Australian home owners and the fragile retail industry.

In his statement, Governor Glenn Stevens noted, slowing growth in China and the global economy, "sovereign credit and banking problems in Europe" have caused considerable turbulence in financial markets, with financing conditions becoming "much more difficult".

"This, together with precautionary behaviour by firms and households, means that the likelihood of a further material slowing in global growth has increased". Easing commodity prices as a result of these factors has taken pressure off CPI inflation rates, which "afforded scope for a modest reduction in the cash rate".

Will the banks be naughty or nice?

As we saw last month, the banks don't jump at the chance to reduce their rates. The Mozo team can confirm that most of the big banks took around two weeks to pass on the rate cut. Even worse, NAB failed to pass on the full 0.25% - only dropping their rates by 0.20%. The Commonwealth Bank, being a good little Santa's helper, was the only big bank with some early Christmas spirit, implementing the changes in only three days.

The aftermath of today's rate cut will show whether there will be a real Grinch this Christmas. Don't worry the Mozo team is here to track down the changes and see which banks will be naughty or nice.

To fix?

Despite a second consecutive rate cut, fixed home loan rates still represent significant value. Better Option is a stand out with its 3 year fixed rate at 5.89%. Also with rates under 6% are ING Direct, AMP Banking, and Citibank.

If your New Year's resolution is not to over commit, a shorter term fixed contract may be just for you, once again, Better Option tops the tables offering 5.84% over 1 year.

While a fixed loan can be a great investment, it's not a commitment to be taken lightly. Big penalties for early fixed loan termination (break costs) are not something you'll be singing carols about!

Or not to fix?

With rates on the decrease, a variable rate may be a good choice. At this time the standard average variable rate is 7.02%. My Mortgage Freedom is currently the best variable rate with 6.35%.

Be sure to keep a keen eye on the Naughty or Nice table to see which banks are doing what with their rates.

Check your home loan health

Find the best loan for you. If you're home loan is with ANZ on the Breakfree package ($300,000 over 25 years) by switching to My Mortgage Freedom you could save $18,073. Try our home loan health check.

Can't choose between a fixed or variable rate? Don't worry you can get the best of both worlds by fixing the rate on part of your mortgage and keeping the rest on a variable rate. By splitting between the two you can get the cheap fixed rates and grab the variable rates when they drop quickly.

Save this Christmas!

As home owners are singing with the news of the rate cut, savers might not be so happy, as the drop in interest rates should see a drop in savings rates.

A few banks are still offering rates over 6%, with RaboDirect (6.20%), St George (6.05%) and IMB (6%) all at or above the half dozen on their long term deposits.

You can compare all term deposits with our market wide comparison tool.

Merry Christmas to one and all! Happy saving!

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