What determines an interest rate change?
Whilst everyone with a mortgage keeps an eye on the RBA Cash Rate announcement each month to determine what will happen with their current interest rate, there are multiple other factors that come in to play when banks determine your interest rate.
A very important factor and one you should keep your eye on is the Bank Bill Swap Rate (BBSW).
In simple terms, the BBSW is the short-term interest rate many lenders pay to borrow the funds that they lend to their customers. There are times when a lender increases their interest rates without the RBA increasing the cash rate, and the BBSW could be the reason.
As you can see in the graph, whilst the RBA Cash Rate has been on hold for a record 24 consecutive months, the BBSW has been increasing, which in turn has increased the lender’s costs to borrow funds. This increase in the banks’ overheads will often get passed onto their customers by increasing the interest rate.
Again, there are many factors why lenders increase and decrease your interest rate but the BBSW is a very important rate to watch.
If you would like to this discuss this information further, or would like advice on fixed vs variable interest loans, please contact one of our highly skilled mortgage brokers from the Allan Hall Finance team.