BIR Finance

BIR Finance - Finance for busy people

  • Home
  • About Us
    • Our Philosophy
    • Our Team
    • What our Clients Think
  • Services
    • Residential Property
    • Commercial Property
    • Business Lending
      • Asset Finance
      • Working Capital & Cashflow
    • Personal Loans
    • Personal & Property Services
    • Business & Property Services
  • Resources
    • Financial Calculators
    • Blogs
    • Common Terms & Abbreviations
    • Useful Links
    • Business Referral Relationships
  • Contact Us
  • Request FREE Report
1300 989 878
  • What the Reserve Bank of Australia (RBA) data says about interest rates
  • CALL NOW
  • BOOK AN APPOINTMENT
  • EMAIL US
Blogs

What the Reserve Bank of Australia (RBA) data says about interest rates

Below are some observations as reflected from the data obtained from the RBA for the 12-month period ending 31 August 2020.  Whilst both the absolute numbers and the relationship between rates will change, these observations provide you with useful information when you are shopping for a home loan by explaining some of the macro risk profiles considered by lenders.

1. Principal and Interest (P&I) interest rates are generally lower than Interest Only (IO) interest rates. Based upon a quick look at two major lenders (Macquarie and Westpac), P&I rates are lower than  IO rates by 0.7% pa and a whopping 2.25% pa respectively!!!

This spread in rates can change if lenders form a different view of future economic conditions including inflation. Right now, lenders are rewarding borrowers who can demonstrate a capacity to gradually repay their loan. (PS the sting in the tail for IO loans is that whilst the repayments might be lower (in dollar terms) than a P&I loan, the debt servicing rate for IO loans is higher than for P&I loans; the logic being that after the IO period ends, the loan principal needs to be repaid over a shorter period of time so the monthly repayments of the principal are higher).

2. Rates for Owner Occupiers (OO) are sometimes lower than the rates for Investors (IN).  Currently, the Variable Rates for an Owner Occupier are about 0.3% pa lower than for a similar Variable Rate product for an Investor.

3. The relationship between variable rates and fixed rates is more complex. Depending upon lenders’ views of future interest rates (and a whole bunch of other economic factors), the Variable Rates can be higher or lower than the Fixed Rates. Currently, Variable Rates are lower than most similar Fixed Rate products. And, the difference in interest rates between the two increases as the Fixed Rate term increases (the lowest Fixed Rate term is 1 year and the highest Fixed Rate term is 5 years).

4. The Loan to Value Ratio (LVR) also impacts the interest rate you will pay. If you have an LVR of over 80%, you can expect to pay a premium of anywhere up to 0.5% pa (and perhaps higher). It is also worth noting that loans with a high LVR (mostly over 80% but sometimes a bit higher if, for example, you are an eligible borrower (e.g. medical practitioner)), also require borrowers to pay Lenders Mortgage Insurance (LMI). LMI is an insurance policy the borrower pays to protect the lender in the event of a default and is often capitalised on top of the loan amount. (Note: LMI also has some hidden costs to the borrower in the event of default but more on that elsewhere).

5. The size of the commitment suggests that lenders slightly favour loans under $1.0M over loans. However, the differential is not significant. – between nil and 0.1% pa.

[1] RBA Data: https://www.rba.gov.au/statistics/tables/#interest-rates

 

  • PREVIOUS
  • NEXT
  • Share
Leave a Reply




    RELATED ARTICLES

    All things property and finance – 2301 jan 2023 issue

    All things property and fina...

    Hi, I hope you and your family had a great Christmas break. Even though it's early in the year, there's already some big news around: - Refinancing hits new record - Property listings rise 4.6% - 3 key fixed-rate loan tips Read more below. But first..... 3 things! #1 Our survey results are in! Conveyancer Vs Property Lawyer? Our question was: As a property purchaser, would you …
    View More
    What the reserve bank of australia (rba) data says about interest rates

    What the reserve bank of aus...

    Below are some observations as reflected from the data obtained from the RBA for the 12-month period ending 31 August 2020.  Whilst both the absolute numbers and the relationship between rates will change, these observations provide you with useful information when you are shopping for a home loan by explaining some of the macro risk profiles considered by lenders. 1. Principal and Interest (P…
    View More

    CONTACT

    • Office: 12-16 Parker Street Williamstown VIC 3016
      Mail: 16 Junction Street Newport VIC 3015
    • Ph: 1300 989 878

    LINKS

    • Our Philosophy
    • Contact Us
    • Services Policy
    • Website Privacy Policy

    Services

    • Residential Property
    • Commercial Property
    • Business Lending – Working Capital & Cash Flow
    • Personal Loans
    • Personal & Property Services
    • Business & Property Services

    Resources

    • Common Terms & Abbreviations
    • Useful Links
    • Business Referral Relationships
    • Financial Calculators

    BIR Pty Ltd ACN 117185654, trading as BIR Finance, Credit Representative Number 517662, is authorised under Australian Credit Licence 517192 held by LM Broker Services Pty Ltd ACN 632405504

    Disclaimer statement: This page provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances. Your full financial situation will need to be reviewed prior to acceptance of any offer or product. This page does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances. Where applicable, this page is subject to lenders terms and conditions, fees and charges and eligibility criteria apply.

    If you have any compliments or concerns, please go to our Contact Us page.


      "The privacy of your personal information is important to us. By providing your personal information to Connective, you consent to be contacted by a representative of Connective from time to time for marketing purposes. We will use your contact details to send you direct marketing communications including offers, updates and newsletters that are relevant to the services we provide. We may do so by mail or electronically. You can unsubscribe from by notifying us and we will no longer send this information to you. For Connective’s full Privacy Policy, please refer to our website."

      <iframe src=”https://survey.zohopublic.com/zs/PPCNsh” frameborder=’0′ style=’height:700px;width:100%;’ marginwidth=’0′ marginheight=’0′ scrolling=’auto’></iframe>


      Contact Us

      If you’re busy and want a broker who cares about you and your future, reach out to us. We’re available when you are!


        "The privacy of your personal information is important to us. By providing your personal information to Connective, you consent to be contacted by a representative of Connective from time to time for marketing purposes. We will use your contact details to send you direct marketing communications including offers, updates and newsletters that are relevant to the services we provide. We may do so by mail or electronically. You can unsubscribe from by notifying us and we will no longer send this information to you. For Connective’s full Privacy Policy, please refer to our website."

        Thanks! Your email has been sent.

        Contact Us

        If you’re busy and want a broker who cares about you and your future, reach out to us. We’re available when you are!