10 Aug 2021

Can the Interest Rates Change? If So, What Causes a Change?

Interest rates can change over time. Sometimes they fluctuate every few months. Sometimes, they stay constant for a longer period. Many factors cause interest rates to change.


The Reserve Bank of Australia’s Cash Rate

The cash rate is the most significant factor in changing interest rates. The cash rate is the cost financial institutions charge each other when lending money. Lower cash rates usually indicate lower interest rates. To determine the cash rate, the RBA assesses the inflation rate, unemployment rate, economic growth, and the global economy. A change in any of those factors could affect the cash rate, which, in turn, affects the interest rate. 



Lenders also can affect the interest rate. One bank may have a lower interest rate than another bank for several reasons. One is shareholders. Banks want to keep their shareholders happy by turning a profit. Increasing interest rates on home loans can help banks turn a profit and keep their shareholders happy. The second reason is their customers. Without satisfied customers, banks won’t stay in business. Lowering interest rates can keep their customers happy. Banks often change their interest rates to try to strike a balance between both. 


Your Individual Loan

While the standard interest rates can fluctuate, the rates banks offer borrowers can also change with each loan. The amount you borrow affects your interest rate. Larger loans mean higher interest rates. In addition, the purpose of your loan can also affect your interest rate. Owner-occupied loans have lower interest rates than investment loans. 


The interest rate is an essential factor to understand when purchasing a home because it can fluctuate. If you are applying for a home loan, Mortgage House can help you find one with the most competitive interest rates. 


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