Borrowers were given a helping hand by the RBA during 2019 with interest rates falling, reducing their interest payments. Will mortgage interest rates fall again in 2020?
If you had a mortgage with Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) during 2019 you will hopefully have a lower interest rate than you did at the start of the year. If not, it might be an idea to give them a call!
Banks are unlikely to deliberately reduce their profit if they can help it. The big four ASX banks as well as smaller banks like Bank of Queensland Limited (ASX: BOQ), Suncorp Group Ltd (ASX: SUN), Bendigo and Adelaide Bank Ltd (ASX: BEN) and Mystate Ltd (ASX: MYS) are already facing lower net interest margins (NIM). The NIM is the difference between the cost of bank funding and the rate they can lend out money – it's a key profitability metric.
A continuing fall of mortgage rates and the NIM would mean lower profit for the banks.
The most likely potential reason why Australian mortgage interest rates would fall again in 2020 would be if the Reserve Bank of Australia (RBA) decides to cut interest rates again. Interest rates are already at record lows to try to stimulate the economy.
A lot of households are already in mortgage stress, so it would definitely help things in the short-term if rates were cut further. But there's a danger that the housing market is sent into overdrive and other unintended consequences if there are further cuts. Plus, savers are being heavily punished and pushed into property & shares to try to find return.
Foolish takeaway
I think it's doubtful that Australia will see two rate cuts in 2020, though we may see one more if economic conditions worsen in Australia. But it's anyone's guess, no-one can know for sure what will happen – you'd need a crystal ball! If interest rates are cut again I'd want to redirect some of that saved cashflow into building up a share portfolio.
