Finally, a long-awaited relief for borrowers. The Reserve Bank of Australia (RBA) has cut the cash rate by 25 basis points to 4.10%. How much could this rate cut reduce your monthly mortgage repayments? And can we expect more cuts this year?
This is the first time the RBA has reduced the cash rate since it dropped to 0.10% in November 2020 in response to the COVID-19 pandemic.
Since then, there have been 13 cash rate hikes as the RBA tried to control inflation.
RBA Governor Michele Bullock stated that inflationary pressures are easing more quickly than expected, with recent data showing December quarter underlying inflation at 3.2%.
“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 decrease? If you have a variable-rate mortgage, your bank may soon follow the RBA’s lead and lower the interest rate on your 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 could reduce your monthly repayments by about $77, adding $924 a year back into your household budget.
For a $750,000 loan, your monthly repayments might decrease by about $115, or $1380 per year.
Meanwhile, a $1 million loan could see a reduction of about $154 a month, or $1848 a year.
This assumes your lender passes on the full 25-basis point cut to your home loan.
After years of rate hikes and higher interest rates, one would hope they do, especially with public and government pressure (and a federal election around the corner).
Another consideration is that not all lenders automatically reduce variable home loan monthly repayments in line with rate cuts.
Some lenders maintain your repayment amount at the old level, meaning more of your money goes towards paying off the principal each month. However, you can request them to reduce your repayments in line with their cuts.
To find out what your lender is doing with your loan, contact 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. However, the RBA has not indicated whether more cuts will follow in their most recent statement.
Here are the predictions from economists at the big four banks:
- 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 here, despite this latest cut, many Australian households are still feeling the pressure of high living costs and interest rates.
If you’re in this situation and haven’t had a home loan health check recently, contact us to see if you could improve your home loan.
We can help you explore options such as renegotiating with your current lender, refinancing to another lender, or debt consolidation.
Every household is different, and we’d be happy to help you create a tailored plan for yours.