Compare the Market’s Economic Director David Koch is confident that the Reserve Bank of Australia will slash interest rates again next week, in a move that could leave thousands of dollars more in the hands of some mortgage holders each year.

A 0.25% rate cut would significantly impact the household budget. Someone with a $666,000 mortgage would pocket an extra $106 each month if their bank passed on the rate cut. Over a year, that’s an additional $1,272.

Mr Koch said while the verdict is still out on how big the rate cut will be or how many more we can expect in 2025, a rate cut of at least 0.25% is expected in May.

It follows the RBA’s rate cut in February, which lowered the cash rate to 4.10% from 4.35%.

“Financial markets and economists are almost unanimous in believing they’ll be at least a quarter percent cut in official interest rates in May. And, frankly, so there should be,” Mr Koch said.

“For a year and a half now, the Reserve Bank has been saying: ‘we’ve got to fight inflation together, we’ve got to bring inflation down to that 2 to 3% target band. Tighten your belt, cut your spending, reduce demand, and let’s all bring it down together’. Well, we’ve done it, so we need some reward – and we should get it. We deserve it.”

But if there’s a 0.50% cut, as some experts predict, that same mortgage holder would be left with an extra $212 in the bank each month if their lender passed on the cut. That’s an extra $2,544 annually.

Impact of potential rate cuts on a home loan

*Calculations assume an owner-occupied  loan with a variable interest rate of 6%, 30 year loan term, with no ongoing fees. Monthly repayment calculations assume the lender has passed on the rate cut in full and do not take into account the reduction of the loan balance over time.

“A quarter per cent down would make a huge difference to people’s home loans and meeting the cost-of-living crisis that’s going on at the moment. After that, the jury is still out,” Mr Koch said. “The National Australia Bank thinks there will be another four interest rate cuts between now and the end of the year. That’s one extreme. Others are saying two to three.

“The Reserve Bank will be troubled, though. Yes, they will pass a quarter of a percent through, but gee they’ve got a lot to think about at the moment.

“They’ve got to think about a tariff war, which seems to change on a daily basis, and the impact it will have on our economy. Because remember, we’re a trading nation. In terms of the size of our economy, exports make a huge impact on yours and my lifestyle so that’s really important for them.

“Also, the world’s biggest economy, the United States, one of our biggest trading partners, is going into recession. The last quarter economic figures out of the United States showed a contraction in their economy and all of the daily economic data seems to point that the economic slowdown in America is going to continue for a while. So, the Reserve Bank’s got a lot on their plate at the moment.”

Mr Koch said no matter what happens at the next board meeting, there are things all mortgage holders should do to ensure they’re not paying more than they need to, including:

• Educating themselves about the best rates available, including their current lender’s lowest advertised rate
• Asking their current lender to move them to better rates or move to a lender offering better deals
• Shopping around for offers available, including cheaper rates or enticing incentives
• Checking if there are any cashback offers available that can help secure a better interest rate and leave some extra cash in your pocket

For more information, please contact:  

Phillip Portman | 0437 384 471 | [email protected]

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