RBA interest rates: Here’s how much you’ll save on your home loan if central bank starts cutting next month

It’s been a good while since millions of homeowners could seriously consider the financial benefits of an interest rate cut on their bruised, bloodied and battered budgets.

But fresh data out on Wednesday showing core inflation — the key metric that strips out price volatility and the one most closely watched by the Reserve Bank — dropped to a three-year low of 3.2 per cent for the year to the of December, giving mortgagees hopes of imminent relief as early as next month.

Headline inflation fell to 2.4 per cent for the full year.

While also contending with across-the-board price rises as inflation ran rampant, households struggled to find the extra cash needed to meet soaring monthly home loan repayments that, in some cases, jumped thousands of dollars as the RBA embarked on one of the harshest credit-tightening cycles in a generation.

The official cash rate rose from a record low 0.1 per cent in May 2022 to 4.35 per cent in November 2023 — where it has been stuck for a frustrating 14 months while central bank governor Michele Bullock and her board members refuse to call time on the fight against inflation.

But with Wednesday’s better-than-expected measure comes new hope.

It has already prompted several banks to bring forward their expectations of a cut. Westpac and UBS are tipping the RBA will make its move when it meets for the first time this year on February 17 and 18.

So, how much would a 0.25 percentage-point cut put back in your pocket?

Canstar’s number crunchers reckon a homeowner with a $600,000 loan and 25 years left on their term could see their monthly repayments drop by $92.

Don’t start cracking the champagne just yet. That assumes the banks pass the cut on in full to existing variable rate borrowers.

But in better news, the big four banks expect the RBA to cut anywhere between two and five times — despite their differing opinion on when the cycle will begin. ANZ says May, Commonwealth Bank, Westpac and National Australia Bank tip February.

Even four cuts in 2025 could see the above borrower’s repayments drop by a total of $359 a month by the end of the year.

“The RBA knows how tough it’s been for borrowers with a mortgage and also renters under the pressure of the current cash rate,” says Canstar’s data insights director, Sally Tindall.

“While annual core inflation might not yet be in the RBA’s target band, it should be close enough to warrant action.

“While the RBA meeting is just under three weeks away, borrowers don’t need to sit and wait for our central bank to make a decision; pick up the phone today and haggle with your bank for a rate cut.”

For someone with a $500,000, 30-year loan on a variable rate of about 7 per cent, the first cut could take monthly repayments down from $3337 to $3286 — a saving of $48.

That jumps to $100 a month if you have a $1 million mortgage under the same terms.