The Reserve Bank is expected to announce its third cash rate cut of the year today, bringing the official rate down to 3.6%.
If lenders pass on the cut in full, homeowners with a $600,000 mortgage could see their minimum monthly repayments fall by around $90.
“If the RBA cuts the cash rate down to 3.6%, borrowers across the country will breathe a small sigh of relief for the third time this year,” said Canstar.com.au data insights director Sally Tindall.
“While the relief from an RBA cut is reasonably minuscule in comparison to the previous 13 hikes, four of which were doubles, every small release of pressure is welcome.”
In addition to lowering repayments, a July rate cut could reshape broader mortgage market dynamics. New data from Equifax points to a potential rebound in first home buyer (FHB) activity and continued strength in refinancing. The credit bureau forecasts a 14% increase in new mortgage enquiries and a 16% rise in refinancing within three months of a cut.
Despite the potential savings, many borrowers are choosing to keep their repayments unchanged.
New data from CBA revealed that only 10% of eligible customers requested a direct debit reduction following the May rate cut.
“While it's up to the banks to hand out the rate cuts, it’s borrowers who decide what to do with them. Keep your repayments the same and you could save tens of thousands of dollars in interest and kick your mortgage to the curb years early,” Tindall said.
“Whatever small amount you can add to your mortgage regularly, can end up being life-changing.”
Borrowers who maintain their existing repayment amounts after rate cuts could see significant long-term savings.
According to Canstar modelling, a homeowner with a $600,000 mortgage could save $89,113 in interest and pay off their loan four years early, assuming they continue making higher repayments for the life of the loan and the cash rate remains steady at 3.35%.
“Not every family has the luxury of keeping repayments high and if that’s you, find out whether you need to make contact with your lender to get that relief into your bank account, rather than the mortgage,” Tindall said.
While interest rates are typically adjusted within one–three weeks of a rate cut, not all lenders automatically lower monthly repayments:
“A cut could shave around $90 a month off the repayments on a $600,000 mortgage and while this represents just 2% of the new payment amount, every bit of extra breathing room counts,” Tindall said.
Should the cash rate fall to 3.6%, Canstar expects the following:
“A third cash rate cut in four meetings will also be further confirmation we’re now coming down the other side of the rate hike mountain,” Tindall said.
“We expect the banks to step up and pass it on in full to their variable customers. This would see the average owner-occupier variable rate drop to around 5.55%, however, borrowers can and should aim lower than this. In fact, an eager low-cost lender looking to grab a headline could push variable rates into the 4’s if they stretch themselves.”
