RBA interest rate cut: How you could shave six years off your mortgage

Australian homeowners could soon see much-needed financial relief, with interest rate cuts expected. According to three of the big four banks, up to four rate cuts are forecast for 2025, potentially bringing rates down by a full percentage point.

Comparison site Finder has crunched the numbers, revealing how mortgage holders could take advantage of lower rates to significantly reduce their home loan burden.

How much could you save?

If banks fully pass on the predicted four rate cuts, the average mortgage rate could drop from 6.33 per cent to 5.33 per cent. This shift would have a substantial impact on homeowners, depending on how they manage their repayments:

• Reducing repayments: Homeowners who lower their monthly repayments in line with rate cuts could save $4,860 in 2025 alone and $143,593 in interest over 30 years.
• Keeping repayments the same: Those who maintain their current repayment levels despite the rate cut could save even more - $294,519 in interest-and pay off their loan six years earlier.

Mortgage stress and strategies

Graham Cooke, head of consumer research at Finder, said the expected rate cuts offer hope after years of financial strain.

“There’s finally light at the end of the tunnel for mortgage holders,” Mr Cooke said.

”Australians have endured a gruelling financial squeeze as the RBA hiked interest rates from basically zero to a punishing 4.35 per cent, reshaping the economic landscape.”

Mr Cooke advised that homeowners who have adjusted to higher repayments should consider keeping them steady even when rates fall, as this strategy won’t contribute to inflation-potentially encouraging further rate cuts.

However, not all homeowners will be in a position to do this, with 40 per cent of mortgage holders currently experiencing financial stress, according to Finder’s research.

“Whether you decide to refinance to give yourself a bit more breathing room or to fast-track paying off your mortgage - it’s essential to make sure you’re getting the best rate,” Mr Cooke added.

With rate cuts on the way, now could be a prime opportunity for homeowners to reassess their loan strategy and maximise savings.

Source: Finder uses the average outstanding owner occupied variable rate of 6.33%, a loan term of 30 years and the average owner occupied new loan size of $641,416.