RBA Governor Michele Bullock is set to announce the official cash rate on Tuesday. (Source: Getty/AAP)
Australian homeowners are being advised to evaluate whether they can maintain their mortgage repayments at current rates, even if the Reserve Bank of Australia (RBA) decides to cut rates this week. The central bank is meeting over the next two days to discuss the 4.35 percent rate affecting millions of Australians.
A recent Yahoo Finance survey with nearly 7,000 respondents indicates that 50 percent “haven’t really been concerned” about the 13-year high rate. While a rate cut would undoubtedly offer financial relief to many, there’s a simple strategy that could significantly reduce the duration of your loan.
Simply do nothing.
Three of the Big Four banks are predicting at least four rate cuts this year, amounting to a total reduction of 100 basis points to 3.35 percent.
This would bring the average loan rate down from 6.33 percent to 5.33 percent.
If this forecast is accurate and you continue making your mortgage payments as if there were no changes, it could lead to significant savings in the long run.
Finder’s research indicates that keeping up with your current payments could reduce your mortgage term by six years and save you about $294,519 in interest.
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However, if you’re unable to maintain your current payments, you are projected to save an average of $4,860 in 2025 as a result of the rate cuts.
Over the lifespan of your loan, if you opt to reduce your repayment amounts and refinance, you could potentially save $143,593 in interest, assuming there are no further adjustments to the official cash rate.
Yahoo Finance contributor and Finder’s head of consumer research, Graham Cooke, mentioned that there is “finally a glimmer of hope” for mortgage holders nationwide.
“Australians have faced an intense financial strain as the RBA raised interest rates from nearly zero to a daunting 4.35 percent, altering the economic landscape,” he stated.
“It’s vital to ensure you’re getting the best rate, whether you choose to refinance for more flexibility or to accelerate your mortgage payoff.”
From the 37 experts consulted by Finder, 73 percent anticipate a rate cut this week.
Economist Stephen Koukoulas noted that overall inflation has returned to target levels and believes that an interest rate cut this week is “virtually assured.”
“The sharp increase in the overall inflation rate that plagued the economy, consumers, and businesses from late 2021 until early 2024 is, thankfully, behind us,” he remarked in a Yahoo Finance op-ed.
The Big Four banks are unified in their outlook, projecting that the RBA meeting this week will bring favorable news for mortgage holders.
Here’s a look at their predictions for rate cuts in this cycle:
CBA: 4 cuts to 3.35 percent
Westpac: 4 cuts to 3.35 percent
NAB: 5 cuts to 3.10 percent
ANZ: 2 cuts to 3.85 percent
CBA’s chief of Australian economics, Gareth Aird, expressed 80 percent confidence that Tuesday will mark the first rate cut in five years.
He highlighted that the latest Consumer Price Index data was “significantly below” the RBA’s projections, with wage growth slowing more quickly than expected.
While unemployment rates have dipped below forecasts, Aird argued that this “should not hinder” the initiation of cuts in February.
If the RBA opts not to implement a rate cut this month, it still has seven more meetings scheduled for this year, with the next one slated for the end of March.
This will be influenced by the policies of your lender and its decision to apply the RBA’s update.
CBA chief Matt Comyn shared last week that it usually takes about 10 days for changes to reflect on your account from Tuesday’s meeting.
However, recent analysis suggests that it could take significantly longer for homeowners and the economy to feel the full impact of the cut.
Equifax’s findings indicate that noticeable changes in consumer confidence and spending may not arise until six to nine months later due to the rate cut.
Aaron Scott, co-founder of Austrailian Proptech service bRight Agent, remarked that a cut this week might only provide temporary relief.
“It’s akin to pouring a cup of water on a raging bushfire—it won’t alleviate the ongoing mortgage stress,” he asserted.
“One rate cut might save you enough for a daily coffee, but it won’t restore your premium dining choices like wagyu beef or fine shiraz.”
“A single rate cut is similar to receiving a 4-cent discount on $2-per-litre fuel—it may feel good momentarily, but the savings are gone by the time you drive away.”
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