How will this year's projected rate cuts affect borrowers' repayments?
The Reserve Bank of Australia (RBA) is widely expected to lower interest rates for the first time in over four years today, with financial markets and economists predicting a 25-basis-point reduction in the cash rate to 4.1%.
A Bloomberg survey found that most economists and traders expect the RBA to begin easing monetary policy, potentially offering a political boost to Prime Minister Anthony Albanese as he seeks re-election amid declining poll numbers. If confirmed, it would mark the Reserve Bank of Australia’s (RBA) first rate cut since November 2020.
Major lenders have also signalled expectations for further rate reductions. Three of Australia’s four biggest banks forecast a total of four cuts in 2025, with all four predicting an initial reduction in February. If these projections hold, homeowners could see rates decline by 100 basis points this year.
Should banks pass on the expected cuts in full, the average mortgage rate could decline from 6.33% to 5.33%. Borrowers who reduce their repayments accordingly could save around $4,860 in 2025, according to comparison site Finder.
Over the life of the loan, homeowners who refinance and lower their repayments could reduce total interest paid by $143,593. Those who refinance but continue making higher repayments could save $294,519 in interest and pay off their loan six years sooner.
“There’s finally light at the end of the tunnel for mortgage holders,” said Graham Cooke (pictured), head of consumer research at Finder. “Australians have endured a gruelling financial squeeze as the RBA hiked interest rates from basically zero to a punishing 4.35%, reshaping the economic landscape.”
Cooke advised borrowers to consider maintaining their current repayment levels if financially feasible.
“As borrowing costs fall, mortgage holders who commit to keeping their repayments at the same level could save thousands and years of making payments,” he said. “The bonus is that if you do this, it won’t drive inflation, making more cash rate cuts more likely.”
However, Cooke acknowledged that not all borrowers have this flexibility, pointing out that 40% are in mortgage stress, according to Finder research.
“Whether you decide to refinance to give yourself a bit more breathing room or to fast-track paying off your mortgage – it’s essential to make sure you’re getting the best rate,” he added.
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