The RBA Cash Rate and the Cost of Funds
When the Reserve Bank of Australia cuts the Official cash rate, there are other factors involved in assessing whether the funder will pass on the full rate cut. These factors may include the increasing cost of funds and meeting tougher regulations. Factors may include if the property is Owner Occupied or an Investment property, if the repayment structure is Interest only or Principal and Interest. Please see table below which shows historically what the funder has passed on to customers
4th February 2015 -.25 reduction
6th May 2015 -.25 reduction
4th May 2016 -.25 reduction
3rd August 2016 -.10 reduction (-.25 reduction to new customers)
The advertised rate for new customers may differ to your existing home loan due to differing products, lending criteria and differing cost of funds at the time of settlement. The funder has carefully considered the impact of the current environment and needs of borrowers, given increased funding costs and factors regarding regulations, the funder will be passing on a 0.10% rate reduction effective 20th September 2016. The standard variable rate on owner-occupier home loans represents the lowest we have offered and continues our commitment of providing value to our customers.
Basic Example: In September 2015 I walk into Just Jeans and buy $100 pair of jeans, fast forward 12 months to September 2016 and I walk past that same Just Jeans who now have those same pair of jeans for $60. I can’t walk up to the teller and expect to receive a $40 refund. Why? because most likely the cost of making the jeans and the exchange rate has changed dramatically over the past 12 months as well as many other factors.
As is the same with money, a Funder will buy money at X amount and resell it for Y. If a Funder purchased $100 million dollars at X% in January just because the RBA cash rate goes down in August doesn’t mean the Funder can go back to the Bond market and request a refund or a % back from something they bought 8 months ago, nor can a Funder discount that same money to their existing customers who purchased it between January and August to a point where they are losing money.
As always Reduce Home Loans will continue to help drive down interest rates and provide meaningful competition to the market.