Even in a year of twists and turns, the cash rate kept us on our toes in 2022. While no one is really sure how the rate will change in 2023, we hope that this article will help you understand a bit more about what the cash rate is, how it can affect your mortgage, and some possible predictions.
What is the Cash Rate?
For something that has such an impact on our day to day finances, the cash rate can be tricky to understand. To make a long story short, the cash rate is the interest rate the RBA charges on overnight loans that banks make to each other. If the RBA raises the cash rate, banks and lenders may increase interest rates on the products they offer in response.
Does the cash rate affect mortgages?
The cash rate can affect many different aspects of your finances, including your mortgage. If it rises, your lender may increase the interest rate they apply to your loan, which could increase your repayments. If the cash rate falls, though, your lender may choose to lower interest rates across their offerings, including the rate on your mortgage.
You never want to be caught unawares with an increased repayment, so keeping your ear to the ground is always a good idea. The cash rate is pretty unpredictable, but we’ll go through a few possible predictions in the next section.
What will the cash rate do in 2023?
The cash rate is notoriously difficult to predict, especially after all the rapid changes it underwent in 2022. One of the main reasons the cash rate increased so dramatically in 2022 was because of record inflation, which is predicted to peak at around 8% later this year. The RBA has forecasted that inflation will decrease to just over 3% by 2024, but until then we may have to see a few more increases.
Economists are predicting that there will be less increases over 2023 as compared to 2022 which is good news for mortgage holders. If we look at the last few increases, you’ll notice that the cash rate has only been raised by 25 basis points each time rather than the 50 basis point increases in early to middle 2022. This could be a sign that the RBA may be looking at easing interest rate increases later in 2023.
Of course there’s no definite way of predicting how the cash rate will perform, and there's no guarantee that these predictions will come true, but hopefully these tidbits can help you make your 2023 financial decisions with a bit more more confidence!
When should you refinance your mortgage?
When you refinance is ultimately up to your preferences and the nature of your mortgage, but generally the best time to refinance is when the cash rate is low. However, as we mentioned earlier keeping your ear to the ground is the way to go. If you keep tabs on the market and how its performing, you may be able to find a better deal either with your current lender or a new one.
If you’re thinking about refinancing, consider accessing the equity in your home as well. This move does come with its own risks and considerations, but doing so can provide you with some extra cash that you can invest back into your home, for example through renovations. This move may not be for everyone, so if you are curious you can check out our helpful guide.
This article is intended to provide general information of an educational nature only. This information has been prepared without taking into account your objectives, financial situation or needs. Therefore, before acting on this information, you should consider its appropriateness having regard to these matters and the product terms and conditions. Terms, conditions, fees, charges and credit criteria apply. Information in this article is current as at the date of publication.