What 0.25% RBA Interest Rate Drop Means for Your Mortgage, Loans, and Buying Power
In a move welcomed by many borrowers, the Reserve Bank of Australia (RBA) dropped the official cash rate for the first time in a very long time last May, cutting it by 0.25% to 3.85%. For July, the RBA has decided to hold this rate steady, reflecting its ongoing efforts to support economic growth, keep inflation within its target range, and respond to signs of softening consumer spending and weaker GDP growth.
While the announcement might seem like a technical update best left to economists and market analysts, it has very real implications for everyday Australians—especially for homeowners, investors, and first-home buyers.
So, what does this latest rate cut mean for you? Whether you already have a home loan, are considering refinancing, or are looking to enter the market, here’s what you need to know.
Your Loan Repayments May Not Change Automatically
It’s a common misconception that when the RBA lowers the cash rate, your mortgage repayments will automatically follow suit. In reality, this isn’t always the case.
Here’s why:
While many lenders do pass on the full or partial rate cut, they don’t always adjust your monthly repayments unless you ask them to.
Most loan repayments are set on a fixed amount based on your original loan agreement or current loan schedule.
This means you could technically be paying more than you need to, especially if the interest portion of your repayments has dropped.
What should you do?
Now is the time to check in with your lender. Ask:
Has my interest rate changed following the RBA’s decision?
Have my repayments been updated to reflect the new rate?
If not, can I reduce my repayments or redirect the extra amount to pay off the principal faster?
Is Your Interest Rate Still Competitive?
The market is constantly shifting, and lenders are competing for your business. A lower cash rate means more lenders will likely offer discounted variable rates, special refinance packages, or incentives to attract new customers.
If you haven’t reviewed your mortgage in the last 12 months, you could be paying more than necessary.
Let’s say you locked in a rate when the cash rate was higher—or you’ve been sticking with the same lender out of convenience. There may now be better options out there.
Here’s what a rate review can do:
Uncover whether your interest rate is in line with current market conditions.
Help you determine if switching lenders (or renegotiating with your current one) could result in significant savings.
Identify hidden fees or outdated terms that may no longer serve you.
It’s also worth noting that many lenders are offering cashback offers for refinancing, which could help offset switching costs and add value in the short term.
Thinking of Buying? Your Borrowing Power Just Increased
The RBA’s rate cut doesn’t just help existing borrowers—it can also make buying property more accessible by improving what you can borrow.
Why?
When interest rates fall, the amount of interest paid on a loan decreases, which means you may be able to afford a larger loan while still maintaining manageable repayments.
This is great news for first-home buyers, as a lower rate environment can make entering the market more feasible, especially in a competitive real estate climate.
What this means practically:
You might now qualify for a higher loan amount based on the same income and expense profile.
Lenders adjust their borrowing calculations to reflect lower interest rates, so the math works more in your favour.
You can use this opportunity to explore areas or properties that may have previously been out of reach.
Fixed vs Variable: Should You Switch?
With interest rates dropping, many are now wondering: Is it time to go variable? Should I fix? Or maybe split?
There’s no one-size-fits-all answer, but here are a few considerations:
Fixed rates give you stability and predictability but may now be slightly higher than variable options, given the RBA’s easing stance.
Variable rates move with the market and may offer more savings upfront, especially following a rate cut.
A split loan lets you hedge your bets by fixing a portion and leaving the rest variable.
What Should You Do Now?
The most important takeaway from the RBA’s rate cut isn’t just that rates are lower—it’s that this is the perfect time to take action.
Here’s a checklist to guide your next steps:
1. Review your current mortgage rate
Contact your lender or mortgage broker to understand if your rate has been adjusted and whether you’re on the best deal.
2. Compare other offers on the market
Now’s the time to shop around. Many borrowers save significantly just by refinancing or negotiating a better rate.
3. Understand your new borrowing power
Even if you’re not actively looking, it helps to know where you stand. You may be closer to your next property goal than you think.
4. Refine your repayment strategy
If your repayments stay the same despite a rate drop, consider putting the difference toward your loan principal. It’s a powerful way to pay off your home faster.
5. Speak to an expert
Financial decisions are best made with the right advice. Whether you’re refinancing, buying, or just planning ahead, guidance from a professional can save you money and time.
The RBA’s rate cut is more than just a monetary policy headline—it’s a real opportunity to re-evaluate your financial position, reassess your home loan, and plan ahead with confidence. Whether you’re currently repaying a mortgage, thinking of refinancing, or planning your first property purchase, the decisions you make now can have a long-term impact on your financial wellbeing.
Need help figuring out what this rate cut means for you?
Get in touch with our team for a quick, no-obligation loan review. We’ll help you understand your options and take the next best step—whether that’s negotiating with your current lender, refinancing, or making a move into the market.