This week, the Reserve Bank of Australia chose to raise the official cash rate by 25 basis points in an effort to control inflation. For the large percentage of the population that is struggling to make ends meet, this has big implications and many are asking questions about the RBA’s decision.
Why did the RBA raise rates?
The simple version is that if inflation isn’t in line with the RBA’s target inflation rate, it adjusts the Cash Rate. Sometimes, this means an increase in rates, like we’ve experienced in the last 12 months; other times, the rates are reduced.
The big question being asked at the moment, especially with the current cost of living crisis, is whether rate rises have actually been effective at curbing inflation and whether the RBA can do things other than raise rates to curb inflation.
The RBA was set up with only one tool in its box, and it’s a particularly blunt one. They can only raise or lower rates in an attempt to adjust the speed of the economy. The rest is up to the federal government to control through policy decisions.
What can you do?
While most of us won’t be joining the board of the RBA any time soon, there are still things you can do to reduce the impact of the rate rises on your household. It’s also an opportunity to better understand how to work the system.
Ask your bank for a rate reduction
This is a relatively simple one that can have a big impact. Simply ask your bank for a reduction in the interest rate you’re paying on your mortgage. While they might say no, in most cases, they’ll give you at least a small reduction. Even a reduction of 0.25% will make a big difference in the long term.
Lacey Filipich from Money School wrote an article as a step-by-step guide a few years ago. You can find it here or a summary of it below.
Find your current rate
Off the top of your head, you probably don’t know what rate you’re currently paying. You’re not alone, most people don’t, especially after a year of constant changes. The good news is that it’s quite easy to find — look up your most recent statement and it will be noted there somewhere. You can also find it under your account information when you log into internet banking.
Compare your rate with market averages
Now’s the time to see how competitive the rate you’re paying is. Unless your mortgage is new, it’s unlikely that your rate is going to be highly competitive.
Google comparison rates and look up the rates that the big four banks are offering (they’re easy to find on their websites. Below are links to the pages on the big four.
How does your rate compare? Now that you know what’s possible, you have two choices:
- Go through the refinance process with a broker
- Talk to your current bank
Ask for a reduction
This is something you can also have a broker do, but as it’s quite easy to do it yourself and doesn’t take much time, here’s how you do it. This can be done by going into the branch, by email (if you have the email address of the relevant person), or by phone.
By email
Use this template and adjust to your needs and situation.
Hi {{name}},
I’m a customer of XXXXX with three accounts including my mortgage.
I’d like to discuss a rate reduction following an approach from a mortgage broker. I want to see if you’ll match their rate before I sign with them.
Can we chat on the phone tomorrow (Tuesday) after 11:00 am please? My number is XXXX XXX XXX.
Kind Regards,
{{your name}}
In most cases, you’re going to get a reply and a phone call to discuss. It’s a good idea to be armed with information in the form of the available rate you found when doing your research. They’ll likely say that they need to lodge a request to head office as they don’t have the authority to reduce your rate to match. Within a few days, you’ll get a response from that lodgement. If you’re lucky, you’ll get a large rate reduction and save a lot of money in the coming years. Job done with less than 30 minutes of your time. Now mark your calendar to do it again every 12 months.
If they don’t reduce the rate or only by a little, then you have the decision to make whether to go through the refinancing process to get the rate you want.
Before you start, it’s worth reading Lacey’s Money School article as it gives you some scenarios on how much you can actually save by doing this.
Contact your Federal Politician
If you want to be a little more politically active, then write a letter or email to the federal elected member in your area.
There’s a lot more the government can also be doing to tackle inflation and cost of living. Tell them that you want them to be doing more in parliament to tackle both or they’ll lose your vote at the next election. This is what they’re there for — to represent the interests of their constituents.
