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Interest Rate Cuts Explained: Why Your Bank Might Keep the Savings
65 Plays26 days ago
Rate cuts are making headlines, but not all banks are passing the savings on to you. In this episode, we unpack why your repayments might stay the same—even when your interest rate drops—and how a simple strategy could save you up to $96K. Learn which banks are holding back, what you can do about it, and how to take control of your mortgage in 2025.
Want to take charge of your mortgage and build wealth? Get a free home loan health check from Hunter Galloway – the home for homebuyers. Visit huntergalloway.com.au or call 1300 088 065
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Transcript
Mortgage Rates and Central Bank Cuts
00:00:00
Speaker
Rate cut news is everywhere, but is your mortgage actually going down? Well, spoiler alert, maybe not. We're diving into why some banks are being stinging with these rate cuts and what you can do about it if you feel like you're getting ripped off. We're going to explore exactly how the rate cuts impact your mortgage.
00:00:14
Speaker
I'm going to cover why some banks aren't passing on the full rate cut, why your payments might not change if they do, and most importantly, what you can do to make sure you benefit and potentially save thousands. And quickly before I do, if you get any value from this content, give us a thumbs up. And if you want more content like this, like and subscribe below.
Introduction to 'Buying Your First Home' Podcast
00:00:30
Speaker
All right, let's get into the details. Welcome to the Buying Your First Home podcast, your personal guide through the Australian housing market. Here we tackle the big questions and the small details that come up when buying your first home.
00:00:42
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From financial prep to finding the right neighborhood, we're here to ensure that you've got all the knowledge at your fingertips. So let's take the first step towards unlocking the door to your new home.
00:00:57
Speaker
So the start of 2025, the Reserve Bank made a big change.
Recent Reserve Bank Rate Cut and Responses
00:01:00
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After 13 rises, they cut the cash rate from 4.35% to 4.1%. This was the first cut in over four years.
00:01:08
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After rates going up for so long, it felt like a huge relief for a lot of people with mortgages. Why did the Reserve Bank cut rates at all? Basically, it's about inflation. Prices have been going up like crazy and it's been tough on everyone's budgets. But lately, inflation started to calm down a bit. By December 2024, it was down to 3.2%. That's closer to the RBA's goal 2% to 3%.
00:01:24
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that's closer to the rba's goal of two to three percent Because of this, Reserve Bank felt like it was okay to give borrowers a bit of a break. Now, as that said, what could this mean for you your mortgage repayment? Say you've got a $600,000 loan. If the bank passed on that full interest rate cut of 0.25%, you might save around $92 a month.
00:01:39
Speaker
If your loan's bigger, like $750,000, you could save over $122 a hundred and twenty two dollars month. Sounds amazing, right? But here's the thing to know. Not all banks are passing on all of that rate cut. And even if they do, your payment may not automatically change unless
Banks Passing On Rate Cuts
00:01:52
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you do something about it. So how did the banks react to this rate cut?
00:01:54
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Well, there is some positive news to start. A lot of the banks did pass on the full 0.25% rate cut to people with variable rate home loan mortgages. You'll be happy to hear that all the big four banks, ComBank, NAB, ANZ, Westpac are all in the group that passed on the full rate cut.
00:02:07
Speaker
A lot of the small banks too, like ING, Macquarie, Newcastle Permanent also pass on the full rate cut. So if you are feeling a squeeze, that's good news if you bank with those banks. The bad news is not all banks decided to pass on this interest rate cut.
00:02:19
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Unfortunately, some lenders decided to keep the savings for themselves. An example of this is Bank of Queensland Specialists. They're part of the Bank of Queensland group and focus on professionals like doctors and accountants. They've said they're not going to cut the home loan interest rates at all because of stuff going in the background with their business.
00:02:33
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Virgin Money, which is also part of the Bank of Queensland group, has gone one further. They're not only skipping the rate cuts for home loans, but they've also cut the rate of their boost savings account by even more than Reserve Bank rate cut of
Borrowers' Options and Actions
00:02:43
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0.25%. That's got a lot of people upset and you can understand why.
00:02:46
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But what does this actually mean for you? So if your bank hasn't passed on the rate cut or if you're with one of the banks like Mecca Queensland Specialist or Virgin Money, it could be time to have a look around. Lots of people have been contacting us in the last couple of weeks to see if they can get a better deal with another bank that's passed on the full rate cut.
00:03:00
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Later on, i'm going to talk about how to find a bank that's actually going appreciate your business. Because interestingly, even if your bank has passed on the rate cut, there's something you need to know and it could surprise you. Your mortgage repayments might not actually go down.
00:03:10
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So let's talk about why that happens next. Rate reduction versus repayment adjustment. When the Reserve Bank lowers interest rates, most banks will choose to lower your interest rates on your variable rate home loan. And this is great news. It means you're paying less interest, but it doesn't automatically mean your monthly repayment will decrease.
00:03:24
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In most cases, banks will leave your repayment unchanged unless you actually ask them to adjust it down. For example, if you're with NAB, ComBank, ANZ, you need to log on your Interbanking or call the lender or visit a branch to lower your repayments.
00:03:37
Speaker
Why don't they do this automatically? Well, banks argue that most borrowers prefer keeping their repayments the same level to pay off their loan faster. Which is true, you're paying a higher repayment, more than the minimum helps you pay off the loan quicker, but might not necessarily help your budget.
00:03:49
Speaker
Banks that adjust repayments automatically. Some of the lenders like Westpac and Macquarie automatically reduce repayments for customers to the minimum amount. But with that being said, these changes can still take a couple of weeks to show up because the different billing cycles.
00:04:00
Speaker
If you're already paying more than the minimum, you'll still need to take action yourself because you may have manually adjusted it up. Now you might be wondering why this matters. Well, this inconsistency can be frustrating because you might be thinking, well, why do the banks automatically increase their payments from rate rise, but they don't reduce them when they fall?
00:04:14
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It feels a bit unfair and I completely get it. As I mentioned before, there is potential upside. If your payments stay the same after a rate cut, more of your money is going towards reducing the loan principal rather than paying off interest.
00:04:25
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Over time, this helps you pay off your mortgage faster, saving you literally thousands in interest. But what should you do? If your payments haven't changed or if you're unsure whether they will, it's checking with your bank or broker. And you can decide what's going to work best for your situation. Lowering your payments in the short term could help you with the cash flow and your budget relief, but keeping them steady in the same in the long run is going to save you a lot on that interest over the life
Managing Repayments for Long-Term Savings
00:04:44
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loan.
00:04:44
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Either way, taking control and knowing your options is all the difference here. So on that second point, let's talk about a simple strategy that could save you tens of thousands of dollars on your mortgage. No, this isn't one of those sprucks. I'm not going to charge you a $5,000 course. It doesn't involve complicated financial maneuvers, sacrificing avocado and toast. It's just one small decision that can make a big impact.
00:05:02
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They're forecasting more interest rate cuts. And the real tip here is after interest rate cut, consider keeping repayments at the same level before. All right, let me show you an example of why this works and how it can help you financially. When your bank lowers your interest rate, the amount of interest you charge every month decreases.
00:05:16
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If you keep making the same repayment as before, the extra money you're paying goes directly to reducing your loan principal. This reduces the total interest of life alone and helps you pay off for your mortgage way quicker. So imagine you have $500,000 loan with a 25-year loan term.
00:05:28
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After the recent 0.25% cut, reducing your repayments could save you $150 a month in the short term. But if you keep it the current repayment amount, you could save $48,000 of interest over the life the loan and pay off your loan two years quicker.
00:05:41
Speaker
That's not enough? Well, let's scale up your loan to say a million dollar home loan. If you load your repayments to the minimum, could save you about $300 per month. But if you maintain your current interest rate repayments before the rate drop, you could save nearly $96,000 in interest and two years off your home loan term. The crazy thing is it's just not numbers. It's you know potentially a couple of years of salary after tax.
00:06:00
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It can be difference between helping you get ahead and pay off that loan way faster. And while it could be a bit of short-term pain, think about what those savings could mean for
Review and Verification of Repayment Terms
00:06:08
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you longer term. Less financial stress, more flexibility, you could invest in other properties, go on holidays, all sorts of fun stuff.
00:06:14
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Knowledge is power in this case. So if you're comfortable with your current repayments, consider sticking to it even after the rate cut. It's one of the easiest ways to make a dent out of that home loan. Alright, so it's a lot of numbers but what did we cover today? We talked about how banks are passing on rate cuts while others won't.
00:06:28
Speaker
We went through why banks don't automatically drop repayments even when rates go down and how keeping your repayments steady can save you tens of thousands of dollars and years off your mortgage. Now, it's over to you. Check with your broker or bank to find out what's going to happen with repayments even just so you know because if you expect it to go down, you expect another $150 a month in budget, it may not happen so you need to give a call and find out. And if you're not happy with what your bank's done with the interest rates,
00:06:49
Speaker
Hit us up at HuntGalloway. We're the home for homeowners and buyers across Australia. We can do a quick review. You can just do it over the phone and say, yep, like your rates pretty much bang on. No, it's going to cost you $1,000 to switch banks a month. It makes sense. Or yeah, absolutely there's better deals out there.
00:07:02
Speaker
We'd love to have a chat. So hit us up at HuntGalloway.com.au. And until next time, see you later.