What does the RBA rate cut mean for Australian mortgage holders?

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On 3 March 2020, the Reserve Bank of Australia (RBA) cut the nation’s cash rate by 25 basis points to a new record low of 0.50 per cent. Many banks are passing the rate cut on in full, but some are only passing it on to new customers.

However, with some banks slashing selected interest rates even before the RBA announcement, it’s possible to get a discount on your home loan interest payments, if you know where to look.

Why did the RBA cut the cash rate?

According to RBA governor, Dr Philip Lowe, the decision to cut the cash rate was influenced by a wide range of factors, led by the effect of the current coronavirus crisis on the Australian economy.

“The global outbreak of the coronavirus is expected to delay progress in Australia towards full employment and the inflation target. The Board therefore judged that it was appropriate to ease monetary policy further to provide additional support to employment and economic activity.”

Dr Lowe also mentioned that once the coronavirus is contained, the economy is expected to return to an improving trend, though the RBA “is prepared to ease monetary policy further to support the Australian economy.”

Which banks are passing on the rate cut?

Many Australian banks have already announced they are passing the RBA rate cut on in full. This includes the big four banks of ANZ, Commonwealth Bank, NAB and Westpac, in a sharp contrast with the last RBA cut in October 2019, when they only passed on an average of 14 basis points in cuts.

Outside the big four, some of the first banks to announce they were passing on the full rate cut included:

To keep track of which banks have passed on the RBA rate cut, including their new lowest ongoing variable rates, visit the RateCity Rate Tracker.

It’s also important to remember that some banks slashed interest rates on selected mortgage offers even before the RBA’s announcement. In mid-February 2020, Commonwealth Bank slashed its fixed home loan rates by up to 50 basis points.

A week later, ANZ slashed its own fixed rate home loan interest rates by up to 86 basis points in response. Many of these rate cuts were for investment home loans, indicating that banks are eager to start winning back business from investors, who have been limited by regulations on investment lending for years.

What does the cut mean for Australian mortgage holders?

With many banks passing on the full cut, and others lowering rates on selected loans even before the RBA’s announcement, many borrowers may be in a position to get a better deal on a mortgage, whether they’re buying a property or refinancing.

Property investors may be especially well-positioned to get a better deal, with many of Australia’s leading lenders now offering investment mortgage rates starting with a 2.

However, some banks are only cutting interest rates for new customers, meaning their existing mortgage holders won’t get to enjoy the benefits of the March 2020 rate cut unless they choose to refinance.

The average mortgage holder could save $56 a month if their bank passes the rate cut on in full. However, customers that get a 0.15 per cent cut might only pocket back $34, while a 0.10 per cent cut would result in savings of just $23, based on a $400,000 mortgage paying principal and interest:

Impact 0.25% rate cut

Loan Amount Monthly Difference Annual Difference
$400,000.00 -$56 -$675
$500,000.00 -$70 -$843
$750,000.00 -$105 -$1,265

Impact 0.15% rate cut

Loan Amount Monthly Difference Annual Difference
$400,000.00 -$34 -$406
$500,000.00 -$42 -$508
$750,000.00 -$63 -$761

Impact 0.10% rate cut

Loan Amount Monthly Difference Annual Difference
$400,000.00 -$23 -$271
$500,000.00 -$28 -$339
$750,000.00 -$42 -$508

Source: RateCity.com.au

Note: Calculations based on the average owner-occupier principal and interest rate on RateCity.com.au of 3.73%, 30-year loan term.

Even if you’re already a customer with a bank that’s discounting its mortgage rates (and you don’t have a fixed rate home loan), it could be worth keeping an eye on your options to refinance with a different lender.

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