Given that the next scheduled Reserve Bank of Australia (RBA) cash rate decision is still three weeks away on 7 April, an inter-meeting rate cut has become a very real possibility, with economists predicting a 0.25% reduction to be announced this week.
The RBA is meeting Thursday to discuss the further action needed to mitigate the economic impact of the coronavirus pandemic.
According to RateCity.com.au, a 0.25% cut that is passed on in full by lenders will see the minimum monthly mortgage repayments of the average mortgage holder with a $400,000 loan reduce by as much as $55 a month.
However, to this point, a large portion of customers have opted to put money saved through rate cuts back into their mortgage, either intentionally or because many banks’ default position is to keep mortgage repayments the same.
Three of the big four, CBA, NAB and ANZ, do not automatically lower their variable rate customers’ monthly repayments, while Westpac has just switched from adjusting variable rate monthly repayments once a year to automatic monthly adjustments.
Conversely, many smaller lenders automatically lower their variable customers’ monthly repayments when rates are cut including St George, ING, HSBC, Bank of Melbourne, BankSA and Macquarie Bank - unless customers request otherwise.
“Many Australians are already ahead on their mortgage because their bank has kept their monthly repayments the same when interest rates were cut,” said RateCity.com.au research director Sally Tindall.
“This is money some people can potentially access through their redraw, should they find themselves in a tight financial position.
“If interest rates are cut again, some mortgage holders may want to rethink what they do with the savings.
“Think about what’s best for your finances and, if needed, get some independent financial advice to put yourself in the best possible position in these unprecedented times," she said.
From 2011, the cash rate in Australia has been cut 16 times, falling from 4.75% in October 2011 and now resting at 0.50% as of today, 17 March.
Mortgage holders who have opted to keep their monthly repayments the same throughout are now thousands of dollars ahead on their home loan.