Rate Cut? Don’t Expect Lower Mortgage Repayments!

Great news this week—the Reserve Bank of Australia has announced an interest rate cut of 0.25%! While it’s a small drop compared to the 4.25% increase over the last few years, for mortgage holders, any relief is welcome.

However, if you were expecting extra disposable cash in your account right away, you might be in for a surprise.

Most major banks—including CBA, NAB, ANZ, Westpac, St George, and ING—do not automatically reduce mortgage repayments when interest rates go down.

What this means for you?

If you do nothing, your repayment amount will stay the same, but you’ll pay off more principal each month. On balance, that’s not a bad thing—it means you’ll pay off your debt faster.

For example, if you have a $1,000,000 loan at 6% interest with 30 years remaining:

• Lowering your repayment to the new minimum would give you an extra $37 per week in your account.

• Keeping your repayment the same and applying that extra $37 to your principal could save you 2 years and $87,734 in interest!

Things to Consider (which is not financial advice):

• Investment loans: You may prefer to pay only the minimum required principal each month.

• Owner-occupied loans: Can you access additional principal repayments if needed? If not, you might be better off putting extra funds in an offset account.

Need to Lower Your Repayments?

If you want or need to reduce your monthly repayment, you’ll need to contact your bank. Some banks allow you to adjust repayments via online banking, but usually only after the rate cut takes effect.

• Effective dates:

  • CBA, NAB, and ANZ: Friday, 28th February

  • Westpac, St George, and ING: Tuesday, 4th March

Banks That Automatically Adjust Repayments:

AMP, Bankwest, Macquarie, and Pepper.

Looking ahead, the RBA is likely to hold rates steady for a few months to assess the impact of this cut. I don’t expect another reduction before the federal election. 

I also don’t think one rate cut will have any material impact on Sydney house prices - as outlined above, the difference is $37 per week on a $1m loan. It just doesn’t shift the dial on borrowing power enough to have an impact.

I really love talking about this, so if you ever want to chat, feel free to reach out!