Nov 30


Published in new car financemortgage brokerhome finance by Vicky Edema
There are not too many benefits coming out of the world wide credit crisis, but one at least, is the reducing home finance interest rates that we are now experiencing in Australia. Home finance is becoming more affordable as the Reserve Bank of Australia (RBA) drops interest rates. In October interest rates reduced by 1% p.a and then in November they reduced again by a further 0.75%. While the banks and other lending institutions may not always pass on the full rate reduction to their home finance customers, at least part of these rate reductions are being passed on with the result that home finance interest rates are now below 7% p.a. variable at least for standard home finance loans.

It does not seem so long ago that everyone was anxious about the upward trend in home finance interest rates. We saw a number of RBA interest rate increases to the point where many home finance packages had an interest rate exceeding 9% p.a. Fortunately,not too many people fixed their rates at these higher home finance rate levels, instead deciding to ride out the changes and hope that interest rates would fall again. And fall they have done.

In Australia we will feel ecstatic if interest rates on home finance drop below 6% p.a. In the United States of America where this credit crisis first began to unravel home finance interest rates are predicted to go as low as 1%. Some economists even say they might see a negative interest rate on home finance. Can you imagine – the government or lender actually pays you to borrow money for home finance. Somehow I don’t see this happening here in Australia but at least as home finance rates come down here and elsewhere around the world, people will feel under considerably less stress.

Just why has there been this sudden reversal in interest and home finance rates? The concern is that if home finance and other loan interest rates remain high people will try to save and apply as much as possible to repay their home finance and other debts - credit cards, car finance etc. They will not spend on anything but the main necessities of life – food, petrol and their home finance mortgage which keeps a roof over their head. Because consumers stop spending, manufacturers stop producing as much (no one is buying) and ultimately because business revenues reduce workers are laid off. Unemployment escalates and the confidence in the country takes a nose dive. A recession or depression can follow if the governments do not turn confidence around and get people into spending mode again.

So, your home finance interest rates have been dropping, and there seems little doubt that we may see a further reduction in home finance rates in December 2008. If you want to keep the economy ticking then spend some of the surplus cash these lower home finance interest rates give you –don’t buy using your credit card - pay cash and keep the economy moving and people employed.
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