What Happens to Your Home Loan When Interest Rates Drop?

Exciting news for homeowners—many economists predict the Reserve Bank of Australia (RBA) will cut interest rates soon. If this happens, what does it mean for your home loan? Here’s a detailed breakdown of what to expect if rates head south.

A Long-Awaited Rate Cut

The last time the RBA lowered rates was back in 2020. Now, with growing speculation from major banks like NAB and Westpac, a 0.25% rate cut could be on the horizon when the RBA board meets on February 17-18.

Of course, nothing is guaranteed, but if the rate does drop, understanding how it affects your home loan is crucial.

What Happens to Your Home Loan Rate?

If you’re on a fixed-rate mortgage, your interest rate remains unchanged regardless of what happens to the cash rate. Your repayments stay the same until your fixed term ends. If your fixed period is nearing expiration, now is a great time to plan your next steps.

This is where things get interesting. A drop in the cash rate usually leads to a lower variable home loan rate. However, banks aren’t obligated to pass on the full cut. 

In past instances, some lenders have only reduced rates partially. That said, with the current cost-of-living crisis, banks may be more inclined to pass on the full cut to avoid negative publicity.

Your lender will notify you of any changes to your rate after the RBA’s decision.

Will Your Repayments Go Down?

Not necessarily.

Some banks automatically lower repayments when interest rates fall, putting extra cash into your household budget. Others keep repayments the same, meaning more of your payment goes toward the principal, helping you pay off your loan faster.

If you prefer a lower repayment, check with your lender. Some may require you to request an adjustment.

How Much Could Your Repayments Decrease?

If the RBA cuts rates by 0.25%, here’s how much you might save on your mortgage:

• $500,000 loan: About $77 less per month ($924 per year)
• $750,000 loan: About $115 less per month ($1,380 per year)
• $1 million loan: About $154 less per month ($1,848 per year)

Need a Home Loan Check-Up?

Even if a rate cut is on the horizon, many households are still struggling with high living costs. If you haven’t reviewed your home loan recently, now’s a good time to see if you can secure a better deal.

At Osinski Finance, we specialise in helping homeowners optimise their mortgage strategies. Whether it’s renegotiating with your current lender, refinancing for a lower rate, or exploring debt consolidation, we’ll tailor a plan to suit your financial goals.

Want to make sure you're getting the best deal? Contact us today and let’s explore your options.


Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.