Reserve Bank will cut the interest rate to 0.1 per cent

Discussion in 'Living Room' started by Hari Yellina, 23rd Sep, 2020.

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Do you think Reserve Bank will cut the interest rate to 0.1 per cent

  1. Yes

    43.8%
  2. No

    34.4%
  3. Not sure

    21.9%
  1. Hari Yellina

    Hari Yellina Well-Known Member

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    Reserve Bank will cut the interest rate to 0.1 per cent
     
  2. Trainee

    Trainee Well-Known Member

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    So what? Nothing would change.
     
  3. Hari Yellina

    Hari Yellina Well-Known Member

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    Serviceability will increase
    DTI will get better.

    Will be able to borrow more.
     
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  4. Blueskies

    Blueskies Well-Known Member

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    If they don't want to go negative it's about all they can do. There was a good article about it in the fin review today, saying they will hold off until the budget is handed down, to see how much government stimulus is in there.
     
  5. euro73

    euro73 Well-Known Member Business Member

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    IF the banks pass on 15 bpts
    IF they also lower their floor rates
    And even if both things happen, the difference 15bpts will make for most people is tiny.
    Yes, it would meet the definition of "improvement" ... but it would also meet the definition of "disappointing" or "nothing to see here" for those thinking it would supercharge serviceability suddenly. It wont be providing everyone with 300 ,400, 500K extra capacity. Might give some borrowers a few thousand more..... hardly enough to go crazy with :)

    DTI won't change. It's not driven by lower rates. It's driven by debt and income multiples. If you were borrowing 6 x income yesterday its still 6 x income today. if you were borrowing 7 x income yesterday its still 7 x income today . Get a payrise , increase your rents or pay down debt if you want your DTI to improve.....

    Love the optimism though ;)
     
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  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Servicing for mod to large portfolio Investors has generally become worse with lowered rates, since the floor hasnt changed but actuals are used to calc neg gearing with most lenders

    ta
    rolf
     
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  7. Hari Yellina

    Hari Yellina Well-Known Member

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    Well said.
     
  8. Lindsay_W

    Lindsay_W Well-Known Member

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    Wishful thinking ;)
     
  9. Hari Yellina

    Hari Yellina Well-Known Member

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    As an Investor, we always wish the best.

    I am waiting for the interest rate to drop and increase my serviceability.
     
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  10. Lindsay_W

    Lindsay_W Well-Known Member

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    Nothing wrong with that :)
    BUT just because the RBA drops the rate doesn't mean serviceability will get better.
     
  11. Hari Yellina

    Hari Yellina Well-Known Member

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    Lindsay,

    Can you please give me more insight on it.

    1) Interest rate drops, my interest rate drops. so, my repayment drops. so, my serviceability increases. isn't that how it works.
     
  12. jprops

    jprops Well-Known Member

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    Refer to Rolf's post

    I.e. when you are assessed for servicibility, the bank uses a "floor" rate which may not drop with interest rates. But the kicker is that when calculating negative gearing benefits they will use the actual rate.
     
  13. Trainee

    Trainee Well-Known Member

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    How big a difference daya think 0.15% will make?
     
  14. Momentum

    Momentum Well-Known Member

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    It's a 60% reduction going from .25 to .10 but that doesn't mean the banks will pass it on
     
  15. Trainee

    Trainee Well-Known Member

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    So......what % do you think your borrowing capacity will increase by, if the RBA rate gets cut 60% (!!!) from 0.25 to 0.10 and the banks pass it on and actually reduce the qualifying rate by the same 0.15%?
     
  16. Morgs

    Morgs Well-Known Member Business Member

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    Only if the floor assessment rate drops with it... at the minute many loans particularly OO are under the lender floor rates.

    E.g. for CBA 2.69% variable + 2.50% buffer = 5.19% but their floor is at 5.40%
    If rates dropped 0.15% then it'll be 2.54% + 2.50% = 5.04% but won't make a difference to servicing unless the floor drops from 5.40%
     
  17. Lacrim

    Lacrim Well-Known Member

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    Even if banks pass the reduction on, it's the Principal component that's the killer for most people - and that doesn't come down no matter what.

    More relaxed ending standards is something to write about...a drop of .15%, pfft.
     
  18. Lindsay_W

    Lindsay_W Well-Known Member

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    Too simplified, also you are assuming the banks will pass on the full rate cut BUT even if they did, on $1M worth of Debt you would save $1500 per annum in interest - this isn't going to translate into much of an increase in borrowing capacity.
    There is also the fact that Rolf mentioned above, you get a lower rate and your negative gearing benefit on lender servicing calculation decreases as well.
     
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  19. rizzle

    rizzle Well-Known Member

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    Markets are saying there is about a 2 in 3 chance of this cut:
    EDIT: Sorry the market has actually priced in a full cut to 0.1% for the October meeting.

    upload_2020-9-24_12-35-53.png

    However I feel like they'll want to keep this up their sleeve for when they can see the ipmact of the reduced jobkeeper payments (so maybe at Oct RBA meeting = one month of data at the reduced jobkeeper rate).
     
  20. Hari Yellina

    Hari Yellina Well-Known Member

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    Very interesting point. Floor rates.