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Finally, a long-awaited reprieve for borrowers. The Reserve Bank of Australia has today cut the cash rate by 25 basis points to 4.10%. How much could this rate cut decrease your monthly mortgage repayments? And can we expect more cuts this year?
This is the first time the Reserve Bank of Australia (RBA) has cut the cash rate since it slashed rates to 0.10% in November 2020 in response to the COVID-19 outbreak.
Since then, we’ve had 13 cash rate hikes as the RBA attempted to rein in inflation.
RBA Governor Michele Bullock said in a statement that inflationary pressures are now easing a little more quickly than expected after recent data showed December quarter underlying inflation was 3.2 per cent.
“There has also been continued subdued growth in private demand and wage pressures have eased,” Governor Bullock said.
“These factors give the Board more confidence that inflation is moving sustainably towards the midpoint of the 2–3 per cent target range.”
How much might your mortgage repayments now decrease?
Unless you’re on a fixed-rate mortgage, hopefully your bank will soon follow the RBA’s lead and decrease the interest rate on your variable home loan.
For an owner-occupier with a 25-year loan of $500,000 paying principal and interest, this month’s 25 basis point rate cut means your monthly repayments could decrease by about $77 a month. That would put $924 a year back into your household budget.
If you have a $750,000 loan, your monthly repayments will likely decrease by about $115 a month – or $1380 per year.
Meanwhile, a $1 million loan could decrease by about $154 a month – or $1848 a year.
This all assumes that your lender automatically passes on the full 25-basis point cut to your home loan.
After so many years of rate hikes and higher interest rates one would hope they would, and there will be public and government pressure for lenders to do so (especially with a federal election around the corner).
Another thing to consider is that not all lenders automatically reduce variable home loan monthly repayment amounts in line with rate cuts.
Some lenders simply maintain your repayment amount at the old level. It’s just that more of your money goes towards paying off the principal (rather than the interest) each month. But you can ask them to reduce your repayments in line with their cuts.
To find out what your lender is doing with your loan, get in touch with us in a few days once the dust has settled.
How low are interest rates expected to go in 2025?
There are still seven more RBA meetings this year, during which the board may cut the cash rate further. But the RBA remained tight-lipped on whether more cuts will follow in their most recent statement.
Here are what economists at the big 4 banks are predicting.
– NAB: cash rate falling to 3.10% by February 2026 (four more cuts)
– CBA: cash rate falling to 3.35% by December 2025 (three more cuts)
– Westpac: cash rate falling to 3.35% by December 2025 (three more cuts)
– ANZ: cash rate falling to 3.85% by August 2025 (one more cut)
Are you worried about your mortgage? Get in touch
Despite this latest cut, there are still plenty of Australian households feeling the pinch of cost of living pressures and high interest rates.
If you fall into that category and haven’t had a home loan health check in a while, get in touch to see if you could be doing better on your home loan.
Some options we can help you explore include renegotiating with your current lender, refinancing to another lender, or debt consolidation.
Every household is different – and we’d be more than happy to help you come up with a tailored plan for yours.
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