Disappointed homeowners hoping for mortgage relief from the Reserve Bank have been urged to negotiate their own rate cuts or switch to cheaper rates – a move that could save some borrowers hundreds of dollars on their monthly repayments.
Compare the Market Economic Director David Koch said the cash rate hold was a let down but hardly surprising.
“Fast and furious is not Michelle Bullock’s modus operandi – she’s looking for sustainable progress reducing inflation, and while we’ve had some positive signs, nothing is certain yet,” Mr Koch said.
“Trump talking tough on tariffs and concerns of a recession in the US have put fear into the markets. I think it’s unlikely we’ll see more rate cuts in this environment.”
Monthly repayments on an average $666,000 loan with a variable interest rate of 6.3% could reduce as much as $108 – or around $1,296 over the course of the year, if a 0.25% cut is passed on by the banks.*
However, Mr Koch said that there was hope for borrowers willing to put in some leg work to either negotiate or switch to a better rate.
Analysis from Compare the Market found the difference between some advertised rates from lenders could be up to 0.50% – the equivalent of two regular Reserve Bank cuts.
That could represent a saving of $214 on monthly repayments – or $2,568 over a year – for someone with a $666,000 loan**.
Impact of multiple rate cuts on monthly repayments
| Loan size | Impact of a 0.25% rate cut | Impact of x2 0.25% (0.50%) | Impact of x3 0.25% rate cuts (0.75%) | Impact of x4 0.25% rate cuts (1%) |
| $500,000 | $81 | $161 | $256 | $318 |
| $600,000 | $97 | $193 | $307 | $382 |
| $750,000 | $122 | $242 | $384 | $478 |
| $900,000 | $146 | $290 | $461 | $573 |
| $1,000,000 | $162 | $322 | $512 | $637 |
| *Calculations assume an owner-occupied loan with a variable interest rate of 6.3% that is reduced to 5.3% after four 0.25% rate cuts passed on in full by the bank. It assumes a 30-year loan term, with no ongoing fees. This does not take into account the reduction of the loan balance over time. | ||||
Mr Koch said while the RBA was likely to adopt a watch and wait approach in the medium-term, homeowners could still try to negotiate their own rate cuts with their bank or mortgage broker.
“We can’t rely on the Reserve Bank to deliver mortgage relief. That means we have to be more vigilant ourselves to make sure we’re getting a good deal,” Mr Koch said.
“Homeowners who have been with the same lender for a number of years need to make sure they are at a rate that is commensurate with what new customers are getting.
“Compare what other lenders are advertising to see what else is out there. If your lender won’t match the market leading rates, it might be time to switch.
“Also look out for cashback offers for refinancers, which can be worth thousands of dollars. When so many families are stretched to the max covering every day essentials, we can’t afford to waste money on our mortgages.”
*Calculations assume an owner-occupied loan of $666,000 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.
** Calculations assume an owner-occupied loan of $666,000 with an LVR of 70-80%, 30 year loan term, with no ongoing fees. Calculations show the difference between a variable interest rate of 6.24% vs 5.74%. Monthly repayment calculations do not take into account the reduction of the loan balance over time.
For more information please contact:
Sarah Orr | 0401 044 292 | [email protected]
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