Rates are on the move.
Are you getting the best deal on your mortgage?

The Reserve Bank of Australia (RBA) has just made a move that homeowners have been waiting for—a cash rate cut for the first time since 2020. The cash rate is now at 4.10%, down from 4.35%, following a cooling of inflation within the RBA’s target range. With rates finally heading downward, now is the perfect time to reassess your mortgage and make sure you’re getting the best deal possible.

What Does a Rate Drop Mean for Homeowners?

When the RBA lowers the cash rate, lenders often follow by reducing interest rates on home loans. This means lower repayments for many borrowers and new opportunities to take control of your financial future. Whether you’re looking to refinance, consolidate debt, or make your mortgage work harder for you, now is the time to explore your options.

The Key Opportunities With a Rate Drop

1. Refinance for a Lower Interest Rate

If your mortgage has been sitting at a higher rate for the past few years, you could be overpaying. Refinancing now could mean securing a lower rate, reducing your monthly repayments, and saving thousands over the life of your loan. Many lenders are offering competitive deals to attract refinancers, so it’s worth shopping around.

Crunching the Numbers

Let’s look at a hypothetical couple, Emily and Ben. They have a mortgage of $640,000 (the average Australian mortgage is currently $642,121) with a 30-year term and a variable interest rate of 6.3% p.a. Their current repayments are $3,959 per month. If their lender passes on the full 0.25 percentage point rate cut, their interest rate would drop to 6.05%, reducing their repayments to $3,856 per month. This would save them around $1,236 per year. If another 0.25 percentage point cut happens later this year, their repayments could drop further to $3,753, saving them around $2,472 annually.

2. Consolidate Debt for Greater Financial Control

A lower mortgage rate makes it more appealing to consolidate high-interest debts, such as credit cards or personal loans, into your home loan. This can reduce the amount of interest you pay and simplify your repayments, giving you greater financial stability and peace of mind.

3. Increase Repayments and Pay Off Your Loan Sooner

Just because rates have dropped doesn’t mean you need to reduce your mortgage repayments. By maintaining your current repayment amount, you can pay down your loan faster and cut years off your mortgage. This is a great strategy for homeowners who want to build equity quicker and save on long-term interest costs. For example; if Emily and Ben continue to pay the same repayments ($103 extra per month), they could pay off their home loan 2 years faster!

4. Take Advantage of Market Opportunities

For those looking to buy, a rate drop can make homeownership more affordable. Lower borrowing costs may also create opportunities for property investors or those considering upgrading to a new home.

Borrowing Power

A single borrower earning $95,000 per year with no dependents could see their borrowing power increase if their interest rate drops. For example, if their rate moves from 6.3% to 6.05%, their borrowing power might increase from $500,000 to $510,000. Another 0.25 percentage point cut could push their borrowing power up to $525,000.

How to Take Action

Step 1: Review Your Current Mortgage

Check your loan’s interest rate, fees, and features. Ask your broker to compare this with what’s available in the market. If you’re on a variable rate, check that your lender has passed on the rate cut.

Step 2: Consider Refinancing

If you haven’t reviewed your home loan in the last two years, it’s time to contact your broker to check if a better deal is available. Refinancing could help you save on interest and unlock more flexible loan features.

Step 3: Speak to an Expert

Navigating interest rates and mortgage options can be complex. A mortgage broker can help assess your situation, compare lenders, and find the best loan for your needs.

Don’t Leave Money on the Table

With rates on the move, now is the time to act. Whether it’s refinancing to secure a lower rate, consolidating debt, or simply making your mortgage work harder for you, taking action today could set you up for long-term financial success.

Want to see how much you could save? Book a free mortgage health check with Rayne Finance today and click the get started button below.