What changing interest rates in Australia means for Overseas Borrowers?
When reviewing your finances make sure you consider how Australian interest rates are tracking and if necessary, build in a buffer for further increases that might affect your repayments.
Who controls interest rates in Australia?
Decisions concerning the movement in official interest rates in Australia are determined by the Reserve Bank of Australia (the “RBA”).
The RBA’s objective is to ensure that price growth (known as inflation) remains low and stable and it uses ‘monetary policy’ to manage this. Monetary policy involves either increasing the cost of money (by increasing interest rates) to slow the economy down, or lowering the cost of money to encourage spending which promotes the growth of the economy.
What does ‘The Official Cash Rate’ mean?
One of the ways the RBA manages the growth of the Australian economy is by making changes to the interest rate it charges financial institutions (including banks, non-banks, credit unions and other lending institutions). This rate is commonly referred to as the ‘official cash rate’. This cash rate is then used to determine the interest rate on financial products which have variable interest rates, such as savings accounts, cash management trusts, variable rate mortgages and personal loans.
The cash rate also impacts the cost of funding for Australian Financial Institutions.
When do interest rates change?
The RBA meets 11 times a year on the first Tuesday of each month (except in January). During this meeting they can decide to:
- raise the official cash rate
- reduce the official cash rate; or
- keep the official cash rate the same.
For more information about the official cash rate, please refer to the RBA website (www.rba.gov.au).
How do changes in Australia Interest Rates affect you?
For all Australians and overseas borrowers with a variable rate Home Loan, a rise in interest rates will mean increased repayments are required on your mortgage.
When reviewing your finances make sure you consider how Australian interest rates are tracking and if necessary, build in a buffer for further increases that might affect your repayments.
The table below summarises some of the consequences of interest rate changes.
| Increase in interest rates | Decrease in interest rates |
| Mortgage interest payments increase | Mortgage interest payments reduce |
| Reduces personal disposable income | Increases personal disposable income |
| Increases incentive to save rather than spend | Encourages spending |
| Strengthens the value of the Australian dollar | Weakens the value of the Australian dollar |
| May reduce the desire to invest in property, but encourage investment in other assets. | Encourages investment in property |
How can Brighten help?
Brighten Home Loans (“Brighten”) is an Australian owned and regulated non-bank lender responsible for the origination, underwriting, servicing and funding its mortgage portfolio. Brighten has well-established warehouse-funding arrangements with top tier banks, a public RMBS programme and a wholesale credit fund that provides further funding diversification.
Brighten’s comprehensive set of product offerings includes competitive home loans for prime and near prime borrowers, the self-employed, alternative-documentation loans, expats and non-residents.