RBA to cut cash rate to 3.60% – what it means for borrowers

Source: Canstar. Calculations are indicative only, based on an owner-occupier paying principal and interest with 25 years remaining on a starting variable rate of 6.31% in Feb 2025. Assumes cuts in Feb, May and Aug and that the banks pass on the cuts in full a month after the RBA change. Assumes the cash rate remains at 3.60% thereafter and that the borrower continues paying extra for the remainder of loan.

Which banks automatically adjust a borrower’s minimum repayments?

When lenders announce a rate cut, a variable borrower’s interest rate is automatically adjusted within one to three weeks.

However, not all lenders automatically lower a borrower’s monthly repayments. Westpac is the only big bank to do so, while CBA, NAB and ANZ variable customers have to ask their bank to lower their repayments.

If a customer’s rate gets lowered by their bank, but their repayment does not, then the extra interest they were previously paying the bank will go into their mortgage as extra repayments.

• CBA: customers must ask the bank to lower their direct debit.
• Westpac: the bank automatically lowers customers’ direct debit if it’s set to the minimum.
• NAB: customers must ask the bank to lower their direct debit.
• ANZ: customers must ask the bank to lower their direct debit.
• Macquarie: the bank automatically lowers customers’ direct debit if it’s set to the minimum.

Canstar’s data insights director, Sally Tindall says, “The third cash rate cut of the year will provide real relief to borrowers across the country who have been stretched to Timbuktu on the back of the 13 rate hikes.”

“We expect the banks to pass the next RBA cut on in full, however, borrowers should keep a keen eye on announcements from their bank, as will we.

“While one standard rate cut is not a windfall in isolation, a total of three cuts on a $600,000 mortgage tallies up to a drop in monthly repayments of around $272. That’s a grocery shop for a decent-sized family every single month.

“For those managing to hold their budgets together, consider keeping your repayments exactly the same. Every rate cut is another opportunity to invest back into your mortgage and potentially be debt-free months, if not years early.

“If the cash rate drops to 3.60 per cent, then owner-occupiers on a variable rate are likely to be on an average of 5.54 per cent. However, your mortgage rate is one number where you want to be aiming for well below average.

“After this next cash rate cut, ambitious owner-occupiers should be able to set themselves a stretch target of 5.25 per cent.”