SJ Butler - Ballarat Financial Planners

SJButler Mortgage Solutions

menu

Helpful Info - Interest Rates

Home page > Lending Services > Helpful Info - Interest Rates

** This information is provided as information only and does not constitute advice or opinion.

Chances are you have a lot of questions about loan interest rates such as:

What are the different kinds of interest rates out there?

Please refer to our section on Loan Facts and Types of Loans

Who sets the mortgage interest rate?

Mortgage interest rates are set by the lenders. Lenders take into account many factors when setting their interest rates - the Reserve Bank of Australia official cash rate, the lenders' own costs of borrowing, the lenders' capital requirements, competitive forces amongst lenders, the economic cycle, government "pressure".

What external factors affect & influence the interest rates?

Mortgage interest rates are affected and influenced by many external factors, some of which will have no direct relevance to the Australian economy.  International credit factors, strength of overseas banks and governments, international interest rates, credit standings, balance of trade issues, and many others - all of these go into the mix to determine the borrowing rates or capital costs for Australian lenders.  So does the official cash rate set by the Reserve Bank of Australia whose decisions themselves are based on factors both in Australia and overseas such as unemployment, general economic strength and their own forecasts.

What has the cash rate got to do with mortgage interest rates?

The Reserve Bank of Australia (RBA) sets the official cash rate in Australia.  Australian lenders seek a margin above their own cost of borrowing and capital.  As we all know, Australian lenders set their own rates, and changes in the RBA official cash rate are not necessarily passed on exactly by lenders when the lenders set their lending rates and lending products, much to the annoyance of the government.  Whilst the RBA official cash rate remains a benchmark upon which lenders set their margins and their interest rates, movements in the RBA cash rate no longer mean equivalent movements in lender interest rates.

What role does the Reserve Bank of Australia (RBA) play in all this? 

The Reserve Bank of Australia (RBA) reviews interest rates in Australia, generally on a monthly basis, and issues a report after each of its board meetings giving reasons for its decisions and generally a forecast ahead.  The RBA sets the official cash rate in Australia, based upon both Australian and international economic factors - eg, inflation, unemployment, general economic strength and their own forecasts.