How to Prepare for an Interest Rate Cut
We’ve said it before: we are not in the business of predicting decisions by the Reserve Bank of Australia (RBA) on interest rates. Doing so is a fools’ game, best left to economists and bankers.
All the same, if the RBA is to be believed, 2025 should see some long-anticipated rate relief for people with home loans. The Reserve has long maintained that they act on interest rates based largely on Australia’s inflation rate. Their target is for inflation to be between 2 and 3%.
In September 2024 inflation dropped a whopping 1% from the previous quarter, from 3.8% to 2.8% – neatly within the RBA’s target band, and showing clear signs of downward momentum. But rates remained on hold in November and December. Why? Economists pointed to a definition of inflation most mortals had never heard of: “Trimmed Mean CPI”. OK then.
So will rates fall soon?
Probably.
What then?
Now is a good time to start planning for a rate cut. It may come soon. Or maybe a bit later. But probably sometime in the first half of 2025. And depending on your current loan position, you might want to look into making changes to your own mortgage.
Variable rate loans
The majority of Australia mortgage holders have a variable rate loan, which changes (usually) when the RBA makes a change to it’s official cash rate. So if the RBA moves to lower rates, borrowers should see an automatic reduction in repayments within 30 days.
Your lender will write to you with your new repayment details. While it’s possible for lenders to keep rates and repayments on hold, most lower them in line with the RBA decision.
What should you do?
Hmmm. It depends…
If variable rates are falling, fixed rates would be coming down too. At Mortgage Broker Melbourne, we’re happy to run the numbers on your existing variable-rate loan and explain the options. We’ll show you how fixing your rate might pan out over time, based on multiple scenarios.
You don’t even have to be an existing client of ours.
Of course, fixing in a reducing rate market is always a risk because you could find yourself locked into a rate that seemed low at the time but loses its shine as the variables drop.
If, however, you think rate cuts are going to be short lived – or you’d prefer the certainty of a set amount to repay each month – fixing is always an option. You might even consider hedging your bets and splitting your loan into a fixed and a variable component.
Call us anytime to chat on 1800 111 626, or make an appointment online.
Fixed rate loans
Those on fixed rates will have to wait for the fixed term to expire. Not to worry: most fixed rate mortgage holders are paying less than today’s rate anyway so cuts to variable rates will make no difference. You’re probably already better off.
What should you do?
It is highly unlikely that it’s worth swapping from a fixed loan early. Not only is your fixed rate probably probably lower anyway, but there are exit fees if you leave a fixed loan early, which are usually prohibitive.
Fixed rate clients can also be encouraged by the fact that if rates are coming down, the variable rate they revert to when the fixed term expires will be lower than it otherwise could have been. And if rates don’t come down, you’re better off in the meantime.
Talk to us
Whether rates change or not, it’s always a good time to revisit your home loan. In times of change, it’s doubly important to do so.
Our expert brokers are ready and willing to look at your current loan and make sure you’re not only on the right loan today, but that it serves you well down the track.
Our service is always free for you. Of course, you’ll still need to make repayments and cover any regular loan fees from your lender.
Contact Mortgage Broker Melbourne today.
Marc has been a professional lender for 28 years. After beginning his career in 1990 with a UK Building Society, he moved to Australia where he held several different retail banking roles. In 1999 it became clear to him that a mortgage broker would eventually become an obvious choice for someone looking for a home loan so he took the plunge and became an independent broker. He hasn’t looked back since!