As we approach the Reserve Bank of Australia’s (RBA) first interest rate decision for this year. Like many Australians, we’re keeping a close eye on the news and hoping for a positive outcome. Since May 2022 cash rate has gone up 13 times and it is currently sitting on 13 years high (4.35%) and many economists are predicting for a 0.25% drop.
A decrease in the cash rate would be welcome news for many, and could potentially have implications for lower mortgage repayments, borrowing power and ease on household expenses.
So what are the things you should be doing if there is a rate cut;
Monitor if your lender pass on the full rate cut
While the RBA sets the official cash rate, it’s up to individual banks to decide how much of the cut they pass on to borrowers. Some lenders may pass on the full 0.25%, while others might only reduce rates partially. As this is a first rate cut in years, most bank are likely to pass on full rate. Banks/lenders normally notify within 1-2 days about their decision if they will pass on the full or partial rate cut. Keep an eye on the social media posts and/or emails.
If your lender doesn’t pass on the full rate cut, it could be a sign to consider refinancing. With increasing competition between banks, now may be a great time to shop around for a better deal.
How much will your mortgage repayment change?
For those with a variable-rate mortgage, a 0.25% reduction could result in lower monthly repayments. For example, if you have a $750,000 loan over 30 years @6.25%, your repayments could decrease by approximately $121 per month. While this might not seem like much, over a year, that’s an extra $1452 in your pocket—or potentially more if you have a larger loan.
Do I have to contact my bank/lender to adjust repayments?
If you are paying minimum monthly repayment, most banks will adjust the repayment automatically. However if you are paying set monthly repayment (you may have done this to pay off the mortgage quicker) then repayment will not change automatically. With set monthly repayment any rate reduction means that more repayment will go towards principal of the loan and will help you pay mortgage sooner. however if you would like to change, you can do so online or by contacting the lender.
Will rate cut impact property prices?
Lower interest rates often lead to increased borrowing capacity, which can drive up property demand and prices. If rates fall, we could see renewed buyer interest, particularly in competitive markets such as metro areas.
However, other economic factors—such as inflation and employment also play a role in property market movements. Homebuyers should weigh these factors before making a purchasing decision.
As many of us are hoping for this rate cut, we understand that a small rate cut may provide relief to mortgage holders.
In the meantime, if you’d like to discuss how different interest rate scenarios might affect your individual circumstances, please don’t hesitate to reach out. We’re always here to help.
