Bank Governor Philip Lowe warns “Australia is unlikely to return to a world of low and stable…”
Interest rates appear to have peaked, and the RBA believes the rate is unlikely to return to the record low and stable rates that existed pre pandemic.
Fixing interest rates allows a borrower to budget for a fixed rate over a fixed term .
An IRO Option is an additional benefit or the finance client to lower the interest rate in their finance facility or credit contract if the cash target rate declines.
Australian Securities existing finance clients can on rollover or on commencement of new finance are eligible for an Interest Reset Option.
The interest reset option permits the finance client during the term of the loan to request the rate be reset by the amount of any downward movement in the RBA cash target rate.
How the IRO works
The reset option allows the finance client to have a reliable fixed interest for the term of the loan and take benefit of a decline in the cash target rate at any time during the term of the loan when the lower rate can be locked in.
Terms and Conditions Apply
1. Available only to existing and new finance clients for performing Finance Facility Agreements or Credit Contracts which have the IRO entitlement included in their extension or new loan approval.
2. Reset Option must be made by email request to Australian Securities within 15 days of the change in Cash Target Rate.
3. Interest rate will be reset on the next rest date for payment of interest and continue for the remaining finance term.
4. Finance clients pay an additional 0.25% interest from term commencement to exercise the IRO and continues for the term duration.
Working Example of IRO Option TM
Finance approved for a finance client to borrow $500,000 with an interest rate of 7.00% for a one-year term. Finance client requests an IRO Option and pays 0.25% – resulting in a 7.25% interest. Two months after RBA Cash Target rate lifts 0.25% – fixed rate no impact on interest rate
Three months after RBA Cash Target rate declines 0.10% finance client can reset the rate down by 0.10% or wait to expect a further cut in rates.
Five months after RBA Cash Target rate declines 0.50% finance client can reset the rate down by 0.50% to 6.75% and rate is locked at that rate until the end of the term.
At rollover a new rate is set, and the IRO Option can be included in the agreement if agreed by Australian Securities. IRO does not apply to non-performing loans.
Enquiries are invited by our finance team.
Interest Reset Options have been used by our finance clients for over two decades.
Still not sure…
Call us on 1300 275 275 to talk to one of our Investment Managers or Investment Executives. We prioritise direct communication and personalised support for our clients.
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