If you’re a homeowner, 2025 is already looking a little friendlier year (maybe?!) than the rollercoaster that was 2024.
We’ve already had two Reserve Bank rate cuts so far this year, and there’s chatter from economists that more could be on the way. This is good news if you too have been feeling the pinch of increased living costs.
Despite homeowners wanting more funds left in their pockets at the end of each month, plenty of Aussies have chosen (so far) to keep their repayments right where they are. Whilst this may seem surprising, it’s actually a smart play long-term.
What’s happening here?
Let’s break it down.
Let’s say you have $500,000 variable rate home loan. We’ve had two rate cuts this year (each at 0.25%). This has shaved about $160 off your monthly loan repayments, which is nothing to sneeze at!
But recent data from CommBank shows only 14% of their variable rate borrowers have opted to lower their monthly repayment after the first cut in February. The rest? They’ve kept the repayments at the same amount.
At first glance, it might sound like borrowers have missed the memo. Remember, most lenders don’t automatically drop your minimum repayments when the rates fall. Lenders often keep the repayment amount the same, unless you reduce it yourself – as we have talked about here.
By keeping the repayment amount the same, more of your money goes toward paying off the loan principal rather than interest. And that’s where the magic happens.
Why keeping your repayments steady could be a smart move
By continuing to make the same repayment amount even when interest rates fall, you’re paying a little extra into your loan each month, which goes straight into reducing the balance of your loan.
Let’s put some numbers to it.
If you stick with those pre-rate cut repayments (in this case, paying $160 more per month than your new minimum), on a $500,000 variable loan at a 6% variable rate over 25 years, you could:
- Save close to $55,000 in interest over the life of the loan
- Pay off your mortgage 2.5 years earlier
This is a pretty good result for continuing to do what you’ve already been doing.
And if interest rates fall further (which some experts think they will), the savings could be even bigger!
A turbo charged example of this strategy, is to refinance to another lender to secure a better interest rate. When you switch to your new loan, if you keep the loan term and repayment the same as what you’re currently paying, you’ll get even further ahead. Even a small reduction in the interest rate can make a large difference – especially with a reasonable loan size.
Where do you stand? What’s best for you right now?
Not every lender handles rate cuts the same way so we recommend you check your loan to see what happened after the rate cuts became effective.
Did you interest rate reduce? Did your repayment amount change?
Also, if you’ve been finding it hard to keep up with repayments, it might make sense to reduce your repayments in line with the lower interest rate. This will help to free up some breathing room in your monthly budget.
If you’re unsure what’s best for you – or want to check whether you can secure a better rate – please reach out to our team so we can crunch the numbers for you.
