RBA rate cuts: how they affect your home loan

A cut or a rise only changes your repayment once your lender changes your loan rate. Your balance, remaining term and loan type determine what happens next. The steps below work whichever way the cash rate moves, so you can check the effect on your own loan.

The RBA sets the cash-rate target. Your lender sets the interest rate on your mortgage. They are different rates, and a change in one does not automatically produce the same change in the other.

For an existing variable loan, check the lender’s written notice for your new rate and its start date. Also confirm when the minimum repayment changes and whether you need to adjust a separate scheduled transfer.

For an existing fixed loan, the agreed rate generally stays the same until the fixed period ends. A new fixed offer can change independently. Breaking a fixed loan may involve costs, so get a written quote before switching. A split loan needs to be checked one portion at a time. Our fixed-rate home loan guide explains the trade-offs.

• What interest rate applies to my loan now, and when does any announced change start?
• What will my minimum repayment be, and from which payment date?
• Is there a better rate available on my existing product?
• Would switching products affect my fees, offset account or fixed-rate break costs?

Use the answers to update your budget. A headline about a bank’s new-customer offer may not describe the rate available on your existing loan.

On a hypothetical $500,000 loan with 30 years remaining, a mortgage-rate change from 6.00% to 5.75% reduces monthly repayments by about $80. A rise from 6.00% to 6.25% adds about $81.

The table shows both directions so you can check your budget without needing to predict the next RBA decision.

Monthly principal-and-interest repayments, rounded to the nearest dollar. These are illustrations, not current offers or a prediction of lender pass-through. Each assumes 30 years remaining, a constant rate, monthly repayments, no fees and no offset balance. Actual lender calculations can differ. Use your remaining term in our mortgage calculator.

For an interest-only loan, the calculation is different: a 0.25 percentage point change on a constant $500,000 balance changes annual interest by $1,250, or about $104 a month averaged over a year. That does not repay principal, and interest-only repayments can rise substantially when the interest-only period ends.

If your rate and minimum repayment fall, continuing to pay more can reduce the balance faster, subject to your loan’s extra-repayment rules. Keep enough accessible cash for bills and unexpected costs first.

An offset account may be useful if you want access to savings while reducing the balance used to calculate interest. Compare its fees and any higher loan rate with the interest you expect to save. Offset and redraw access work differently.

A lower mortgage rate can help an application, but it does not guarantee approval or a particular increase in your borrowing limit.

APRA-regulated banks generally assess repayments at least 3% above the actual rate. A hypothetical loan priced at 6.00% would therefore be tested at least 9.00%. If that loan rate fell to 5.75%, the same buffer would imply at least 8.75%, subject to the lender’s assessment floor and other policies. The buffer itself has not fallen in this example.

Your income, expenses, debts, credit limits, deposit and the property also matter. That is why a statement such as “every rate cut adds $25,000 to your borrowing power” is not a reliable buying budget.

If you already have pre-approval, ask for a fresh check before making an unconditional offer or bidding at auction. Do not assume the lender has locked your borrowing limit through later rate changes. See our pre-approval guide.

For first-home buyers, government assistance addresses separate eligibility and deposit questions. A cash-rate decision doesn't tell you whether you qualify for a scheme or grant. Start with our first home buyer guide and confirm the rules for your circumstances before signing.

You can ask for a rate review now. Waiting for an RBA cut does not tell you whether your existing loan is competitive. Our refinancing guide explains how to compare the saving with the cost of switching.

First ask your lender for its best available rate. Then compare suitable alternatives using the same remaining term, loan amount and repayment type. Include application, discharge and ongoing fees, possible lenders mortgage insurance, and any fixed-rate break costs.

As a simple illustration, $1,500 in upfront switching costs divided by a genuine $100 monthly saving gives a 15-month break-even period. This assumes the saving remains constant and there are no other cost differences. It is a screening calculation, not a quote.

A lower repayment can also come from extending the loan term. Compare total interest as well as the monthly amount before restarting a loan over 30 years. Moneysmart’s mortgage switching calculator lets you compare the assumptions.

Our starting point: put your current loan and the proposed loan side by side. A worthwhile change should fit how you use the loan and leave you better placed after costs. Bring your latest statement, current rate, remaining term and offset balance to the conversation.

For investors, make that comparison using the investment loan’s actual rate and repayment type. A cash-rate move alone is not a reason to buy another property or assume rents and property values will rise.

Contact your lender’s hardship team early rather than relying on a future rate cut or refinance approval. Free financial counselling is also available through the National Debt Helpline on 1800 007 007

Find your latest statement and write down your balance, interest rate, remaining term and minimum repayment. Check for any lender notice, then compare your budget at your actual rate and a higher-rate scenario.

We can help compare your existing loan with suitable alternatives and work through the costs of switching. If you are buying, we can check how the proposed loan fits your deposit and budget before an application.