Rate Cuts: How does it affect your mortgage?
As of writing, the Reserve Bank of Australia (RBA) has cut the cash rate four times this year. The latest rate cut happened in August, when the RBA slashed rates by 0.25 percentage points to 3.6%. For many aspiring homebuyers, this news is a huge relief, as this could lead to lenders cutting rates on their loan products.
Amidst the rate changes, many Aussie homeowners may be wondering how it can affect them and their existing mortgages. To some, rate falls may be good news that could lower repayments and the overall cost of their loans. Read on if you want to know about how these rate cuts can impact your home loan.
What happens to my loan’s interest rate after a rate cut?
Those with variable rate home loans stand to benefit a lot from the rate cuts. Because these loans change based on market factors (and other conditions determined by the lender), they will be the ones most affected by significant cash rate changes. When the RBA lowers rates, borrowers may see their variable home loan rates decrease as well.
The question now is how much lower your interest rate will be based on the lower cash rate. Lenders don’t necessarily have to follow the cash rate, and some may not pass on the full rate cut to their finance products. If lenders pass 100% of the rate cut to their borrowers, you’ll see that reflected on your home loan rate. For example, if the rates drop by 0.25%, your loan rates should also fall by 0.25%. Take note, it's the lender that decides how much they’ll decrease rates on their finance products.
On the other hand, borrowers with a fixed rate home loan won’t be affected by the changing cash rates. If you have a fixed rate loan and fixed term is ending soon, it may be worth revisiting your rates with your lender.
How does the rate change affect my loan repayments?
For those with variable loans, a rate cut could mean their minimum repayment amount is also slashed. The change to your repayments can vary depending on how much the lender reduces their rates. You can use an online home loan repayment calculator to see what lower repayments could look like for you.
It’s best to check your minimum monthly, weekly, or fortnightly repayments directly with your lender to ensure you’re not missing out on potential savings. When rate changes are implemented, it’s a good idea to connect with your lender to discuss what this means for your home loan.
Meanwhile, if you have a fixed rate home loan and are within the fixed rate period, rate changes will not affect your repayments. They will stay the same and won't lower their rates to match the new interest rates. On the flipside, when rate hikes come and you’re still under the fixed term, you won’t see increases in your repayments.
Can you save money on your home loan when there's a rate cut?
Lower rates do mean potential savings. But it all depends on how you go about it and what kind of savings you’re looking for, and your current financial situation.
Rate cuts give borrowers the opportunity to save on their monthly repayments by lowering the minimum amount. According to the latest National Bureau of Statistics data (June 2025), the average mortgage size is $678,000. Using the same loan amount with a 5.54% interest rate per annum over a 30-year loan term, that will have a monthly repayment of $3,867.
Now, when rates are cut by 0.25%, for example, and the lender decides to pass on the full rate cut, the interest rate on your variable home loan will be reduced to 5.29% per annum. That means your monthly repayments will be reduced to $3,761, that’s a difference of $106 per month or an annual savings of $1,272.
When rates fall, some lenders don’t automatically change direct debit payments to the new minimum amount. For borrowers who want to take advantage of lower repayments, they must call their lenders and ask for their repayments to be adjusted. At loans.com.au, we automatically adjust the direct debit payments set up for the minimum amount to reflect rate changes for our borrowers’ convenience. If you’ve taken out a loan with us, you don’t have to worry about calling in to get the minimum payment amount reduced.
Borrowers may also elect to keep their repayments the same after a rate fall. By doing so, they can whittle down their principal debt more quickly, lower the total interest paid on their loan, and own their home sooner.
Before adjusting your repayments, weigh the pros and cons first to figure out which one suits your needs best. Both options can provide potential savings; consider what works best for your financial goals. You can also discuss the rate changes with your lender to learn more about how it can affect your home loan.
If you’ve taken out a home loan with us and are concerned about how rate changes can affect it, don’t hesitate to get in touch! Our friendly lending specialists are more than happy to answer questions about your home loan and how you can make the most out of possible rate changes. Call 1300 725 344 or email customercare@loans.com.au. You can also arrange a call at your convenience.
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About the article
As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.
