Can you Afford it?

Graeme Salt

The decision to cut interest rates has been welcomed by many homeowners – especially as the banks are passing the cut on in full. But, what does this mean for the average home owner? Well, the most obvious thing is that repayments are reduced. $350,000 is pretty-much the average loan for a Sydney home owner. Reducing a loan from 5.5 per cent to 5.25 per cent would shave $19,800 in repayments over the lifetime of a 30-year loan – not something to be sniffed at. But The Reserve Bank did not reduce rates for the fun of it. The RBA is concerned that, as the mining sector cools down, the other engines of economic growth are not kicking in. This is true for the housing sector; although there has been a growth in property, the sector is far from being on fire. Reducing rates makes home loans more affordable and when home loans are more affordable, the RBA hopes that more people will buy homes. But the way that the banks consider home loan applications will also change. Clearly, before they lend you some money, the banks need to know that you can repay that loan. With lower rates, more people will be able to repay a loan, and so are more likely to get approval. If you thought that you could not afford a home, then it may be worthwhile giving it a second thought. You may now be able to make those repayments. Economists are also expecting rates to drop further – so that $350,000 loan may come more affordable in the coming months. To talk about getting a loan, please feel free to call me on 02 9922 5055 or 0457 755084