Compare the Market’s Economic Director David Koch has commended the Reserve Bank of Australia’s (RBA) move to cut interest rates by 0.25% at today’s board meeting, saying the move could leave an extra $100 in the pockets of some mortgage holders if passed on by lenders.
The nation’s leading economists had largely tipped the RBA to lower the cash rate from 4.35% to 4.10%, with Kochie calling the move a major win for Australians.
“Australian mortgage holders have been doing it tough for too long, with rates climbing more than 4% since 2022 and adding hundreds of dollars onto mortgage repayments each month,” Mr Koch said. “Inflation has been creeping back to the RBA’s target range for some time, so this move is going to help millions of Australians with a mortgage.
“We know that many Australians have been pushed to the absolute brink and with rates turning backwards, this is a real opportunity for some Aussies to get out of the red.”
Monthly repayments on an average $642,000 loan with a variable interest rate of 6.3% could be cut by as much as $104 – or around $1,248 over the course of the year, should banks choose to pass on the rate cut.* The exact reduction would depend on the size of the loan, if the lender passes on the potential rate cut and the current interest rate.
| Impact of a 0.25% rate cut | |
| Loan size | Difference in monthly repayments |
| $500,000 | $81 |
| $600,000 | $97 |
| $750,000 | $122 |
| $900,000 | $146 |
| $1,000,000 | $162 |
| *Calculations assume an owner-occupied loan of $642,000 with a variable interest rate of 6.3%, 30 year loan term, with no ongoing fees. Monthly repayment calculations assume the lender has passed on the rate cut in full and do not take into account the reduction of the loan balance over time. | |
Mr Koch said he hoped banks would be quick to pass on the rate cut to mortgage holders, but said it wasn’t a done deal.
“The RBA has done their part, but now it’s up to the banks who have been profiting off these rate rises to do the right thing and pass the cuts on to borrows,” Mr Koch said. “But if I’m being frank, lenders may be hesitant to lower your rates because it will impact their profit margin. Pay close attention to communication from your lender in the coming days and weeks. If your bank isn’t one who is passing on these rate cuts, you may need to negotiate or switch to a different lender.”
Mr Koch warned Australians that their loyalty to their bank or lender may be costing them and banks that didn’t pass on the rate cuts could be price gouging.
“A lot of people think they’re trapped with their lender, but this isn’t the case,” Mr Koch said. “There are options out there and you’ll notice that even if your bank doesn’t directly lower your rates, they’ll be offering cheaper deals out there to new customers. This tells me that banks can and should be offering lower rates to their existing customers, but sadly, they’ve been getting away with slugging a loyalty tax for too long. It’s price gouging at its finest.”
Mr Koch said there were three steps he liked to take before attempting a negotiation with the banks.
“Before you ask for a lower rate, arm yourself with information. You should know your lender’s lowest advertised rate,” Mr Koch said.
“Next shop around and see what other offers are available – you might find even cheaper rates or enticing incentives like cashbacks.
“Finally, use a calculator to work out what you could be saving – knowing the money you could be clawing back is great motivation.
“You should feel empowered to negotiate. The worst thing that can happen is that your bank will tell you ‘no’ and then you’re free to move on to a different lender.”
Compare the Market analysis conducted in February found a 1.4% difference between the highest (7.24%) and lowest (5.84%) advertised rates for some variable loans.
| Mortgage size | Monthly minimum repayments based on advertised variable rates | ||
| Minimum monthly repayments on variable P&I rate of 5.84% (Reduced Home Loans) | Minimum monthly repayments on variable P&I rate of 7.24% (ANZ) | Difference in monthly minimum repayments | |
| $500,000 | $2,946.51 | $3,407.49 | $460.98 |
| $600,000 | $3,535.82 | $4,088.99 | $553.17 |
| $750,000 | $4,419.77 | $5,111.24 | $691.47 |
| $900,000 | $5,303.72 | $6,133.48 | $829.76 |
| $1,000,000 | $5,893.03 | $6,814.98 | $921.95 |
| Minimum monthly repayment calculations do not include any reduction in the loan balance over time. These calculations assume: An owner-occupied variable interest rate of 5.84% compared to 7.24% p.a; principal and interest (P&I) repayments; the loan term is 30 years; and there are no monthly fees. | |||
Refinancing may save you thousands of dollars over the life of your loan.
Mr Koch said to look out for the following when refinancing:
- Fees – Ask the new lender to waive upfront fees
- Break costs – If you refinance from a fixed-rate loan before the fixed term is up, you could incur significant break costs
- Cashback deals – The allure of cold hard cash can be tempting but also consider the interest rate being offered
- Avoiding an ugly revert rate – Fixed rate loans usually revert to a standard variable interest rate after a pre-determined amount of time, which is often much higher than the market average variable rate
For more information, please contact:
Phillip Portman | 0437 384 471 | [email protected]
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