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Why you should capitalise on the cash rate

By Andrew Bell

It doesn't matter if it's a small condo or an expansive beachfront villa – picking the right property takes planning. You don't just make sure the home you want has the right number of bathrooms and bedrooms for you or your ideal tenants, checking the finances rigorously is important too! And before you fully commit to a property, you'll likely need to get that home loan organised. 

To do this, it's a good idea to make sure you pay attention to the Reserve Bank of Australia's (RBA) official cash rate – it can impact your buying power in ways you might not be aware of. Let's have a look at how the rate benefits you.

It drives interest – and not just in property!

The official cash rate (OCR) doesn't explicitly dictate what happens to interest rates at banks and other lenders, but it is closely linked to these figures. As the RBA itself notes in a dissection of its role in monetary policy, "mortgage and business loan rates tend to move broadly in line with movements in the cash rate". 

For example: On 3 February this year, the RBA cut the cash rate for the first time in 16 months, taking it down to 2.25 per cent, with the expectation that it would fuel more demand in the economy – perhaps among those looking to buy Main Beach real estate as well. In fact, Loan Market chairman Sam White referred to the cut as a game changer, which would have positive impacts for those with mortgages.

This was evident among major lenders, with several banks immediately announcing cuts to their interest rate. Clearly, watching for a cash rate cut could enable you to secure a more affordable home loan – and perhaps broaden your buying power. 

No time like the present

In his comments about the OCR, head researcher at RP Data Tim Lawless has noted that interest rates haven't been in a lower position since all the way back in 1968. That's almost a 50-year high, which everyone should stand up and take notice of. You can secure a lower interest rate on your home loan through refinancing, or perhaps take the opportunity to finally move in and buy a piece of impeccable Surfers Paradise property.

Whatever your property goal, there's no denying that now is probably the time to do it. You could reduce your mortgage term, and renegotiating the terms of a home loan could set you up nicely for some positive cashflow in a Surfers Paradise rental home, by having lower repayments – and more cash in your pocket. 

Use it for property, use it for gain

The main downside of a low cash rate and interest is that savings plans like term deposits will generate value more slowly. However, real estate offers one fantastic option in these times. Consider the price gains in Sydney that we have all been hearing about. While not as red-hot, prices are also increasing across Queensland, giving you steady growth in a very valuable asset. 

The cash rate is a formative part of Australia's economy, used to impact the power of the national dollar, to moderate inflation and keep it within target. Additionally, it can stimulate buyers, giving them a shot in the arm to bring them into the market. 

If you think 2015 is the year to buy a home, then our present cash rate environment is likely as good a playing field as you might see for some time. The next step in that is finding the right property for your needs – that's where the team of professionals at Ray White Surfers Paradise can be of assistance. 

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