Yesterday, the Reserve Bank of Australia (RBA) cut interest rates by another .25%, as expected by many.  The April reduction brings the cash rate to the lowest recorded rate since it was established in Australia.  Of course, this is great news to borrowers and people who are still looking to purchase that first elusive home… but before you start dancing a jig, there’s some bad news that comes with it.

The bad news is, many of the banks won’t be passing this interest rate cut on to the consumer…. that’s right! You!  Chances are, you won’t ever get to see a cent of savings from this interest rate cut.  The Commonwealth Bank (CBA), the only one to move so far, has decided to pass on just 0.1% of the rate cut to it’s borrowers.  National Australia Bank (NAB) has declined to pass on the drop in rates at all, leaving its borrowers high and dry, while ANZ and Westpac are still undecided on what they re going to do at this point.

Canberra, both Government and Opposition, are calling for the banks to pass on the rate cut in full, as the rate cut is only effective in stimulating the economy if it actually filters down to the end consumer.  If the banks are simply using it to increase their profit margins, then the economy will remain at a standstill and the rate cut will be almost pointless, other than history making.

As the banks decide which way they are going to go, I’d suggest keeping up your current repayments anyway, if you can afford to.  You’ll see great benefits down the track, as you pay off your mortgage a lot faster and increase your net position quicker than you would have otherwise.  I always suggest to my clients, where possible, to take the monthly repayment, cut it in half and pay that amount every fortnight… as well as keeping up your current repayment.  Wherever a rate cut appears, if you can keep paying the amount you were before the cut, you’ll be a heck of a lot better off in the long run.

Let us know who you are with, and what you think of the decision they’ve made.