Australia’s ‘big four’ banks all have announced they will reduce the standard variable home loan interest rate by 0.25 per cent,.
The Reserve Bank of Australia’s move to reduce the rate from 4.35 per cent to 4.1 per cent was widely expected by the market and is the first cut since 2020.
For an average owner-occupier with a $600,000 loan, that cut will translate to a $92 reduction in their minimum monthly repayments.
The Reserve Bank of Australia has cut interest rates for the first time since November 2020. Source: SBS News
When will the rate cut take effect for mortgage holders?
ANZ, Commonwealth Bank, NAB, Macquarie, Bankwest, and Suncorp’s 0.25 per cent reduction will be effective from 28 February, while mortgage holders at Westpac will have to wait until 4 March.
Westpac, ING, St George, Bank of Melbourne, and BankSA also announced they’ll pass on a 0.25 per cent reduction on 4 March.
ANZ’s Maile Carnegie said the customers struggling amid the rising cost of living would welcome the rate cut.
“We’re conscious that interest rates for borrowers remain high,” she said.
“While our data indicates that our customers are generally faring well, some will still be facing challenges. We urge them to reach out sooner rather than later to discuss options for any additional support required.”
For an average owner-occupier with a $600,000 loan, Tuesday’s cut will translate to a $92 reduction in their minimum monthly repayments. Source: SBS News
Greens Treasury spokesperson Nick McKim called on the banks to pass on bigger cuts to borrowers.
“Bank corporations are happy to increase their mortgage rates by more than the RBA puts them up when it suits them. They should do the same now rates are falling,” he said.
AMP’s deputy chief economist, Diana Mousina, said for existing mortgage holders, it would take a few months for the impact of the rate cut to be reflected in their accounts.
For new borrowers — on average earnings and average loan — it will extra borrowing power to the tune of about $9,000 or $10,000.
“If you calculate the rate cut we have had, the tax cut we have from the 1 July last year and the improvement to purchasing power through the drop in inflation and wages running above that, the average household is about $80 a week better off now, relative to a year ago,” she told ABC News.
How much will borrowers save?
If all lenders pass the cut on in full, borrowers with an average home loan of $641,416 can expect to save over $100 per month, according to financial comparison site Finder.
These Australians would see their mortgage drop from $3,887 per month to $3,784, it said.
Westpac said the 0.25 per cent cut will save customers an extra $90 per month, or $1,080 per year, based on a $500,000 home loan with principal and interest repayments.
What number your interest rate should have in front of it?
Graham Cooke, head of consumer research at Finder, said borrowers on a variable loan should be looking at a number with a five in front of it.
“When you’re in that territory, you know you’re starting to get decent value,” he told SBS News.
In terms of fixed rates, that number should be around four, he said, considering the RBA had not ruled out further cuts.
“If you were looking at a fixed rate, you’d probably want to factor in four to six rate cuts in that rate below the variable rate to make it worthwhile, so one or one and a half per cent lower, which you’re probably not going to get in the market right now.”
The Australian government’s ensuring the benefits outweigh the costs before refinancing, as mortgage holders may be subject certain fees when switching.
The information in this article is general in nature and is not intended as financial advice. You should consult with a licenced professional to make the decisions that are right for you.
