But let us first find out, what is cash rate and how is it related to interest rate!
Well, a cash rate is a financial concept which pertains to Australia. It is a metric that is set by the Reserve Bank of Australia, which is to be paid by every bank, for the amount it borrows. It is a transfer rate that is processed by banks among each other, and the interest paid on the same.
Now, how is this cash rate related to the interest rate? The cash rate tends to dictate the amount of interest that needs to be paid for borrowings, which will affect the interest rates. Since these costs are to be transferred onto the consumers and individual money lenders, this will create a high rate of interest for mortgage takers. Therefore, the fluctuation of the cash rate tends to determine the interest rate an individual has to pay for his/her mortgage. This is not the only reason why the interest rate changes constantly, and sometimes can be a burden on the pockets of an individual; but is one of the major ones.
The way in which the actual relationship between the two terminologies work is that the cash rate gets revised every month to stabilize the economy of a country. The cash rate can heavily cause an imbalance on the economic conditions of a country, and therefore needs to be managed in a meticulous manner.
The banks that have a liquidity facility are the only ones supported with the cash rate, which means they are going to be the only influencers of your interest rate. This in turn will affect the actual mortgage loan process for you, as a borrower.
In interviews with various Bank Managers , it was revealed that the lenders will take all possible measures, in the right direction of course, to ensure that the banks can effectively function in all kinds of economic conditions, encompassed with all the competitiveness. At the same time, they will also try to keep the interest of the borrowers, at the best suited interests. However, sometimes, there are some lenders who will try and increase the interest rates just to make sure the bank survives somehow. They will try to sometimes take the interest rates even higher than the actual cash rate to maintain their balance. But it becomes the duty of the borrower to see for himself, all different kinds of interest rates in the competitive market, before opting for a particular mortgage lender. The borrowers should not just, therefore, opt for a flexible mortgage plan, but also a feasible one; after researching well for it, in the market.