Good news for homeowners – many economists are predicting an RBA rate cut in February. If it happens, what should you expect next? Here’s a breakdown of what to anticipate when rates decrease.
It’s been a while since homeowners celebrated a rate cut. The last time the Reserve Bank of Australia (RBA) reduced rates was in 2020. However, things might be changing soon.
A growing number of economists, along with banks like NAB and Westpac, are forecasting a 0.25% rate cut when the RBA board meets on February 17-18. Of course, this isn’t guaranteed.
If rates do drop, it’s important to understand how your home loan and repayments might be affected.
What will happen to my loan rate?
- Fixed-rate home loan: No changes will occur to your rate or monthly repayments.
- Variable rate home loan: If the RBA cuts the cash rate, your variable home loan rate should decrease as well. However, banks aren’t obligated to follow the cash rate exactly, and they haven’t always passed on rate cuts in full. Given the current cost-of-living climate, banks might pass on the full rate cut to avoid backlash.
How do you find out the new rate?
Your lender will inform you of any changes to your rate.
Will my repayments change if rates fall?
Not necessarily. Some lenders automatically reduce home loan repayments in line with rate cuts, while others maintain your repayments at the old level, directing more of your money towards paying off the principal each month. This can be frustrating if you’re looking for extra money in your budget, but it helps you pay off your loan faster.
To find out if your bank will automatically adjust your repayments or if you need to request it, get in touch with us.
How much might your mortgage repayments decrease?
- $500,000 loan: Monthly repayments could decrease by about $77, saving you $924 a year.
- $750,000 loan: Monthly repayments could decrease by about $115, saving you $1380 a year.
- $1 million loan: Monthly repayments could decrease by about $154, saving you $1848 a year.
Worried about your mortgage? Get in touch
Despite a potential rate cut, many households are still feeling the pressure of high living costs and interest rates. If you haven’t had a home loan health check recently, contact us to see if you could improve your situation. We can help you explore options like renegotiating with your current lender, refinancing, or debt consolidation. Every household is different, and we’re here to help you create a tailored plan.