RBA holds in June 2024 – what will a future interest rate cut look like?
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The Reserve Bank of Australia (RBA) continues its cash rate freeze as it works to assess the petering-out of inflation across the nation.
According to a post-decision statement from the RBA, higher interest rates have been working to slow inflation, but the decline has lost a bit of pace due to "continuing excess demand in the economy, coupled with elevated domestic cost pressures, for both labour and non-labour inputs."
This is the sixth Monetary Policy decision in a row where the cash rate is set at 4.35% – a run we haven’t seen in over a decade.
Since the RBA started raising the cash rate back in May 2022, economists have been trying to guess when interest rates will finally come down.
While most of the Big Four banks tend to believe it’ll happen in November 2024, it’s unlikely that borrowers will see overnight relief.
So, what would a cash rate cut even look like for your home loan?
On 18 June 2024, CommBank, NAB, and Westpac economists all forecast a 0.25% cut in November 2024, while ANZ has a far less optimistic view, with sights set on February 2025.
Supposing this leads to a 0.25% decline in the Mozo database’s average, owner-occupier variable rate (6.80% p.a., at the time of writing), repayments for the average mortgage size might only come down by $96 per month.
If the RBA cuts to 4.10% – average rate at 6.55% p.a.
| State | Average Home Loan Size | Current Average Monthly Repayments ($) | Potential Repayments After Cut ($) | Monthly Repayment Difference ($) | Yearly Repayment Difference ($) |
| Australia | $607,963 | $4,220 | $4,124 | $96 | $1,152 |
| NSW | $744,101 | $5,165 | $5,047 | $118 | $1,416 |
| VIC | $590,475 | $4,098 | $4,005 | $93 | $1,116 |
| QLD | $571,954 | $3,970 | $3,880 | $90 | $1,080 |
| SA | $519,165 | $3,603 | $3,522 | $81 | $972 |
| WA | $521,863 | $3,622 | $3,540 | $82 | $984 |
| TAS | $461,961 | $3,206 | $3,134 | $72 | $864 |
| NT | $461,538 | $3,203 | $3,131 | $72 | $864 |
| ACT | $579,259 | $4,020 | $3,929 | $91 | $1,092 |
| source: mozo.com.au Based on 25 year terms, Owner Occupier Principal & Interest, LVR <80%. Average variable rate of 6.80% as of 18th June 2024, and 6.80% minus 0.25% used for Cash Rate at 4.10% figure. Data accurate as at 18th June 2024. Average Home Loan size based on ABS Lending Indicators data Average Loan Sizes for Owner Occupier Dwellings by State, April 2024 - released 6th June 2024. | |||||
Of course, there’s a good chance we’ll see a few cuts over the next 12 months, meaning those potential savings could grow larger.
If the Big Four predictions are anything to go by, Westpac, NAB, and CommBank say the cash rate will hit 3.85% by March 2025.
Compared to now, if a 0.50% cash reduction was passed on to the average home loan rate, making it 6.30% p.a., hypothetical savings on the average mortgage in Australia would be around $191 per month.
If the RBA cuts to 3.85% – average rate at 6.30% p.a.
| State | Average Home Loan Size | Current Average Monthly Repayments ($) | Potential Repayments After Cut ($) | Monthly Repayment Difference ($) | Yearly Repayment Difference ($) |
| Australia | $607,963 | $4,220 | $4,029 | $191 | $2,292 |
| NSW | $744,101 | $5,165 | $4,932 | $233 | $2,796 |
| VIC | $590,475 | $4,098 | $3,913 | $185 | $2,220 |
| QLD | $571,954 | $3,970 | $3,791 | $179 | $2,148 |
| SA | $519,165 | $3,603 | $3,441 | $162 | $1,944 |
| WA | $521,863 | $3,622 | $3,459 | $163 | $1,956 |
| TAS | $461,961 | $3,206 | $3,062 | $144 | $1,728 |
| NT | $461,538 | $3,203 | $3,059 | $144 | $1,728 |
| ACT | $579,259 | $4,020 | $3,839 | $181 | $2,172 |
| source: mozo.com.au Based on 25 year terms, Owner Occupier Principal & Interest, LVR <80%. Average variable rate of 6.80% as of 18th June 2024, and 6.80% minus 0.50% used for Cash Rate at 3.85% figure. Data accurate as at 18th June 2024. Average Home Loan size based on ABS Lending Indicators data Average Loan Sizes for Owner Occupier Dwellings by State, April 2024 - released 6th June 2024. | |||||
Borrowers currently battling their budgets to make home loan repayments might take solace in the likelihood that interest rates will drop soon, but if immediate relief is what you’re after, here’s what you can do…
Refinance if you can afford to
It’s not possible for everyone, thanks to restrictive serviceability buffers, but if you can afford to refinance to a lower interest rate home loan, that could help you free up some cash each month. Just keep in mind that refinancing can have its own costs.
Make use of your offset account
If you have a home loan with an offset account, make sure you’re topping it up. You can use offsets like an everyday transaction account and even have your income paid directly into it, which can help bring down how much interest you pay significantly.
Access financial hardship support from your lender
According to the National Debt Helpline, those experiencing temporary financial hardship have the right to access support from their lender. There’s a whole range of other services available if you’re going through financial stress, too.
There’s no shame in selling
It’s an outcome that no one really wants, especially in a country where it’s so hard to get a foot on the property ladder in the first place, but selling your home is always an option, especially if you’re choosing between mortgage repayments and other important obligations.
Read last month's Reserve Bank interest rates update.