11 May 2022

What Is the Difference Between Cash Rate and Interest Rate?

Cash Rate and Interest Rates

Behind the scenes, several factors impact the final interest rate that a homebuyer will obtain. Here we explore the cash rate and we briefly outline how it differs from interest rates. Moreover, we briefly discuss what each impacts. 

The Reserve Bank of Australia sets the cash rate. The cash rate impacts banks and lenders. Lenders spend business hours completing transactions with the public. After hours, they spend time completing transactions with each other. For example, to finance a fixed-rate mortgage, lenders must borrow the funds from wholesalers. They enter a contract with them. Then, they fund the mortgage.  Thus, lenders incur costs when completing transactions with each other, too.

Interest rates impact borrowers. The rates double as fees. Lenders will finance your home purchase. However, it will cost you. Plus, interest rates indicate the risk. The higher the rate, the highest the risk for the lender. When the economic activity heats up, interest rates can runaway from the RBA. Thus, they reassess the cash rate against economic activity to restabilise it.  

When the cash rate increases, it indicates that interest rates will increase too. Mortgage House remains an innovator in the lending market. Therefore, we work with our clients to help them hedge their rates against potential increases. We offer several online tools to help homebuyers prepare for the application process and mortgage choice options.

Cash Rate and Interest Rates Conclusion

The cash rate impacts banks while interest rates impact consumers. To find out how the latest changes in the cash rate will impact you, contact our lending specialists to explore your options.

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