The Reserve Bank of Australia (RBA) has cut the cash rate for the first time since 2020, paving the way for banks to lower interest rates.
For an average owner-occupier with a $600,000 loan, Tuesday's decision will translate to a $92 reduction in their minimum monthly repayments.
And more rate cuts could be on the way, with Australia's 'big four' banks expecting a series of interest rate cuts.
How far could rates fall?
When adjusting the cash rate target, the RBA typically makes changes of 0.25 per cent.
The Commonwealth Bank and Westpac predict that the cash rate will fall to 3.35 per cent by December. ANZ forecasts a fall to 3.85 per cent by August, while NAB believes it will reach 3.10 per cent by February 2026.
Will banks pass on the rate cut to customers?
All four major banks, CBA, Westpac, NAB and ANZ, will be passing on the 0.25 per cent cut in full to mortgage holders on a variable rate.
CBA, NAB and ANZ home loan reductions will come into effect on 28 February, while Westpac customers will have to wait until 4 March before their variable rate drops.
There's no guarantee that smaller banks will pass on potential cash rate savings
Sally Tindall, data insights director at the financial comparison site Canstar, said all banks should pass on the rate.
"All four big banks have done the right thing by their customers by passing on this cut in full to variable rate borrowers. This should put pressure on the other banks to play ball and pass this cut on in full," she told SBS News.
"They tend to pass on rate changes within 10 to 14 days of an RBA announcement."
Impact on your fixed mortgage
Tindall said a fixed-rate mortgage is "pretty much set", but you still have options.
"If the bank incorporates a loss because you've broken your fixed-rate contract, they are able to charge you for that loss because a fixed rate is a contract between you and the bank that you've got to pay a certain rate of interest over a set period of time," she said.
"If you don't like the fixed rate that you've locked into, it's well worth having that conversation with your bank to understand if you'd be up for break fees.
"If so, what they would look like and whether the bank would be willing to negotiate and waive any break fees that might come your way."
Should you move to lower repayments?
Banks may allow mortgage holders to switch to lower repayments, saving them money in the short term, but this might not be in their best interest.
Graham Cooke, head of consumer research at comparison site Finder, explained paying more now can reduce the total amount you owe in the long run.
"My main piece of advice is — don’t automatically jump on the lower repayments option," he told SBS News.
"If you can afford it, keep the higher repayments. Each time you do that after the rate drops, it will shave about a year off your mortgage, over 30 years."
How can you negotiate with your bank?
Cooke suggested shopping around to see if you are getting the best deal, which can also give you leverage with your current lender.
"The provider offering the lowest rate is always shifting, so being on top of the market and willing to be flexible could mean you are always in the best value option," Cooke said.
"A simple call along the lines of 'I now have the option to switch to another lender for 1 per cent less' will, more often than not, force your bank to offer you an alternative. If they don't, then you should switch.
"In the modern market, loyalty does not pay."
Can renters negotiate their rent?
Renters are in a "trickier situation" at the negotiation table, but Cooke said landlords might be willing to reduce the rent in a competitive market.
"Interest rates going down is not an argument landlords or agents will typically accept for a rent reduction, unfortunately," he said.
"Instead, you're better off keeping an eye on rental listings around you and finding examples of similar properties that have lowered their rent.
"Present these to your landlord as evidence that you are paying too much and that they may struggle to find a replacement tenant willing to pay the same."
Tenants Union of NSW CEO Leo Patterson Ross said renters would have to wait some time before experiencing financial relief.
"Generally, falling rents only show up when a tenant leaves, so unless the renter becomes aware, they may be able to find a better deal elsewhere and either leave or attempt to negotiate the rent," he said.
"It's worth noting that approximately one in four landlords have no mortgage at all, and so aren't impacted at all by rate changes."
The information in this article is general in nature and is not intended as financial advice. You should consult with a licenced professional to make the decisions that are right for you.
