19-05-2025
Surprise interest rate move many Aussies are making: 'Save $66,580'
Australia's largest home loan lender has revealed the surprising number of homeowners who leapt at the opportunity to reduce their repayments after February's interest rate drop. It was the first bit of mortgage relief since the Reserve Bank's (RBA) rate hike cycle, which saw the cash rate jump more than a dozen times.
You'd think that high interest rates teamed with a cost-of-living crisis, there would be a huge uptick in the number of repayment reduction requests. However, Commonwealth Bank (CBA) found only 14 per cent of eligible customers asked for a decrease after the February 18 RBA meeting.
'For those who did not reduce their direct debit repayments, they may now be making additional repayments on their mortgage, which could help them to pay off their loan faster,' CBA's Home Buying Executive General Manager, Michael Baumann, said.
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'These additional payments will also increase the available balance of their loan accounts and customers may have the flexibility to redraw the available balance at any time, for example, if they experience an unexpected cost.'
Eligible customers were those who weren't paying the lowest amount possible for their loans.
Those on the absolute minimum repayments would have had their direct debits automatically reduced following the RBA's decision to lower the cash rate from 4.35 per cent to 4.10 per cent.
Anyone paying more than the lowest amount had to contact their bank via the app, call or visit a branch in person to request a repayment reduction.
Someone with a $500,000 mortgage would have seen around $80 in savings per month as a result of that move from the central expert Ben Nash told Yahoo Finance that it could work out in your favour in the long run if you kept your repayments where they were at before the February RBA meeting.
"There's no doubt that some people have been struggling to make ends meet, and they are looking at the extra money that's there.
"But if your budget is balanced and you can afford to do something with the money, then it will be good to do that."
Nash used an example of a $711,000 loan and said just one 0.25 per cent rate cut would result in $110 per month in savings.
But if you didn't change the amount you're currently paying, you could shave two years off the loan and save $66,580 in interest over the lifetime of the mortgage.
"If you just bought your first home six months ago, and your mortgage is high and your cash flow is not great, then it probably is going to be more to your advantage to try and chip away at your mortgage more and pay some of that down so that you're reducing your mortgage payments," Nash told Yahoo Finance.
"Whereas, if you bought your home 10 years ago and your mortgage is at a comfortable and manageable level, and your personal your cash flow is reasonably strong, then, if that was me, I would be less inclined to make extra mortgage payments and more inclined to look at how can I invest the money to actually grow and get more of a return on it."
A poll of nearly 10,000 Yahoo Finance readers found that one rate cut hasn't been enough to provide much relief.
Interestingly, 68 per cent said they would need at least four rate cuts to feel financially secure.
The RBA is meeting this week to decide whether to hike, hold, or cut interest rates.
All of the Big Four banks are expecting an interest rate cut on Tuesday, with NAB forecasting a jumbo 50 basis point cut.
Nearly 90 per cent of experts interviewed by Finder believed rates would be cut again by 0.25 percentage points.
Three quarters have forecasted two more cuts in the next 12 months, while more than half (56 per cent) reckon there will be a cut in July and August.
'If rates fall further, it could deliver greater total savings to eligible home loan customers," Baumann said.
"As such, I wouldn't be surprised to see more home loan customers choosing to free up their cash flow by lowering their regular mortgage repayments."
