Find out how much borrowers could save with the latest reduction
With the Reserve Bank of Australia (RBA) reducing the official cash rate by 0.25 percentage points on Tuesday, monthly repayments are expected to go down for mortgage holders and borrowing capacity set to increase for prospective buyers.
The 0.25% reduction has brought the cash rate down to 3.6%, its lowest since April 2023. For the average Australian mortgage of $659,922, repayments could fall from approximately $4,224 to $4,124 per month.
According to Melissa Gielnik (pictured), mortgage broker and founder at Smart Lending, a 0.25% rate cut typically allows buyers to borrow up to $20,000 more. “But they will have to be wary of sellers looking to jack up their price in response,” she said.
Gielnik advised homeowners to direct any savings from lower repayments back into their mortgage balance and to delay fixing their home loan for several months.
“But while there are some great fixed rates at the moment, with some at 4.99% for two years, I do think it’s too early to fix,” she said. “I think there are more rate cuts to come, so if people can pay a higher amount off their loan after the next one, that forced savings will help them reduce debt”
Repayment reductions would vary depending on loan size. For example, a $250,000 loan would drop from $1,600 a month to $1,562 with the 0.25% cut; a $500,000 loan would see monthly payments decrease from $3,200 to $3,124; a $750,000 loan would decrease from $4,800 monthly to $4,687; and a $1 million loan would drop from $6,400 a month to $6,249. These calculations from Moneysmart.gov.au are based on a 5.93% variable rate and a 25-year term.
Gielnik noted that borrowers currently on a variable rate near 5.5% are in a favourable position and should expect their rate to fall to between 5.25% and 5.3%. She also suggested that those with higher rates consider switching lenders.
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