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The Reserve Bank of Australia has just cut the cash rate to record an all-time low of 1.25% which is a 0.25% drop. We are just waiting for the banks to pass on this rate to the general public. Rising unemployment is just one of many disappointing economic pointers to pile up at the RBA’s door since its May meeting. Weak retail volumes for the March quarter, a decline in business and personal lending, capital investment, construction and building approvals, an erosion of the trade surplus, and below-expectation wage growth in April has also applied pressure. The RBA resisted the temptation to cut the cash rate in May despite evaporation of inflation in the March quarter offering a compelling case to do so.

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The RBA said at the time it would closely monitor the strength of the labour market and, as the minutes of the meeting later showed, board members explicitly acknowledged the likelihood of a cut if unemployment did not fall.

What benefits does this give you?

Let’s assume you have 25 years left on your mortgage, you still owe $400,000 and your current interest rate is 4.30 per cent (which is the average variable owner-occupier rate). Here’s how a drop to 4.05 per cent might improve your financial position:

Monthly repayments Annual repayments Total repayments
4.30%* $2,178 $26,138 $653,450
4.05%* $2,122 $25,468 $636,722
Difference $56 $669 $16,728

The Cash Rate Drop

This means more money for you!!!

The big four banks have not yet committed to passing on the cut to borrowers. But should be looking to do it very soon once they do you won’t find a better time to start investing in properties and making some money with the low rate.