Rate tracker - tie yourself to the RBA

Rate tracker - tie yourself to the RBA

Borrowers tired of the ‘wait and see’ interest rate game that happens after the RBA board meet each month, should consider taking out a loan that is linked to the RBA cash rate.

Rate tracking is where the variable home loan interest rate moves with the Reserve Bank of Australia Cash Rate (also known as the Overnight Money Market Interest Rate).

Each month the debate is the same question: should the Big Four banks pass on the RBA’s cut or increase when they announce it, or should they do it ‘out of cycle’.

Every month I think the same thing: if borrowers have a ‘tracked’ loan, they know when rates are cut, their mortgage rate is cut.

Up until bank deregulation in the late 1980s, lenders were obliged to pass on every interest rate cut. Following deregulation, many banks continued this practice not out of any legal requirement but perhaps convention or habit.

Lately some lenders have sought to distance their interest rate changes from the RBA cash rate changes, and the reason for this varies with each lender. But it’s a move that is not popular with borrowers.

When you consider that the RBA cuts or raises interest rates to adjust the economy, borrowers feel a sense of outrage that they’re not being passed on to them.

loans.com.au dream loan express product gives customers the option of selecting a rate tracked loan for three years.  By selecting rate tracking, borrowers have the certainty of knowing that if the RBA cuts the rate, their interest rate is also cut by the full amount. 

By Marie Mortimer. You can follow Marie on Google+

Image credit: efffective.com

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