What the RBA decision may mean for you

If the the RBA cuts the cash rate by 25 basis points to 2.5% and this is passed on in full by your lender (provided you have a variable rate home loan) this is what it could potentially mean for you:


If passed on in full, a 0.25 percentage point rate cut represents a repayment reprieve of $44 per month to a variable rate home loan customer with a typical mortgage of $300,000 and paying the average interest rate of 5.64% (before any rate cuts are applied), according to mortgage comparison website RateCity.com.au.


23 months


Borrowers on the same mortgage terms as above that continue to pay the same monthly amount even if there lender passes on the full rate cut (reducing from 5.64% to 5.39%) will reduce a 30 year loan term to 28 years and 1 month.

10 years

If you have not reduced your home loan repayments since the RBA starting cutting the cash rate in November 2011 - with lenders passing on around 1.6 percentage points out of 1.75 cut from the cash rate - you would reduce your mortgage repayment term by around 10 years, according to Scott Pape.


$150 - $200 per month


According to RateCity.com.au chief executive Alex Parsons, the main thing for borrowers to remember is that they really don’t need to wait for an RBA rate cut. Far bigger cuts are available by comparing and switching to a better deal. “There’s a lot of lazy money out there. Refinancing from the average rate into one of the lowest variable rates on the market would mean savings of over $150 every month, or over $200 per month if today’s cut is passed on to customers,” he says. 

$349 per month

Parsons says the gap between the lowest and highest variable interest rate had grown to 2.01 percentage points - or the equivalent of over eight, 0.25 percentage point rate cuts – with rates ranging from 4.74% to 6.75%. This compares with 12 months ago when the rate spread was 1.78 percentage points, and two years ago when rates ranged by 1.71 percentage points.

The most significant gap between the best and worst mortgage rates was for 5-year fixed terms, which differ by as much as 2.10 percentage points. Home loan rates fixed for 1-year range by as much as 2 percentage points, RateCity calculations show.

“A difference of 2 percentage points may not sound significant, but for a borrower with a $300,000 home loan repaid over 25 years, this gap represents a difference of $349 in monthly repayments and more than $4100 in the first year,” says Parsons.


Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer


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