RBA rate cut: Why you’ll be $1,000+ better off
The Reserve Bank of Australia cut the cash rate for the first time since 2020. This 25 basis point cut means big savings for the average borrower.
The RBA cut the official cash rate by 25 basis points at its meeting today. The decision brings this benchmark interest rate down to 4.10%.
We haven't seen a rate cut since November 2020, when the RBA was mainly worried about "the recovery of the Australian economy from the pandemic."
Today's decision is welcome news for Australian borrowers, who've seen their home loan interest rates soar by over 400 basis points over the last 3 years.
To put that in perspective, in 2021 you could get a home loan with a rate of 2.00%. Up until today, a low home loan rate was much closer to 6.00%.
How much will today's rate cut save me?
Let's assume you've got a home loan of around $640,000 (that's about the average). And you've got a variable home loan interest rate of 6.10% with a 30-year term.
Here's how your repayments would look today and here's how much you'd save if your lender cuts your rate to 5.85%.
- Monthly repayments at 6.10% = $3,879
- Monthly repayments at 5.85% = $3,776
That's an instant saving of $1,236 a year.
Sounds great, but do I have to do anything to get a lower rate?
First of all, you aren't guaranteed a lower rate. Your lender doesn't have to pass the RBA's cut on. Most do, but some lenders may drag their feet, or offer a slightly lower cut than the full 25 basis points.
And remember, if you have a fixed rate home loan you won't get a rate cut. Fixed rate loans don't change, up or down, until the fixed period is over.
3 tips to make sure you're getting a better deal on your home loan
- Check your lender is passing on the cut. It may take days or weeks before your lender announces a decision. Check Finder's rate cut tracker to see if your lender has announced a cut.
- Calculate your savings. Work out how much cheaper your new repayments will be. It's really useful to know how much extra you'll save. You can adjust your household budget, or use the savings to pay your loan off faster through extra repayments or offset account savings.
- Check your lender's website. See if it's offering a better deal for new customers. This often happens. You can call your lender up and ask for the same, lower rate that new customers get.
- Compare other options against your home loan. You never know where you'll find a cheaper home loan rate, especially now that rates are falling. Even if you think you're getting a good deal from your lender, check to see what's out there.
Find out which lenders are cutting rates, by how much and when. Or compare cheaper home loan rates right now.
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