When will home loan interest rates drop?

Homeowners with mortgages have been waiting with bated breath to see when the Reserve Bank of Australia (RBA) will cut the cash rate, which it has held steady at 4.35% since November 2023. Some had hoped for a rate cut following the US Federal Reserve’s recent decision to reduce interest rates by 0.50%, joining other countries like New Zealand, Canada, and the UK in providing relief to homeowners.

So far, the RBA Board has maintained a restrictive monetary policy stance but rate cuts seem to be just around the corner with some economists predicting an interest rate cut could still happen this year.

What’s Happening with Inflation?

Inflation has been trending lower, which is promising. In August, Australia’s annual inflation rate dropped to its lowest level in three years, at 2.7%, down from July’s annual rate of 3.5%.

Despite this, the RBA remains cautious, waiting for a more sustained decrease before cutting the cash rate.

“The board needs to be confident that inflation is moving sustainably towards the [2-3%] target before any decisions are made about a reduction in interest rates,” RBA Governor Michele Bullock said. But inflation in Australia is still above target and was proving to be “sticky” according to the RBA Governor. “Progress in getting underlying inflation down has slowed and it’s likely to have remained slow in the September quarter” she said.

The next RBA cash rate decision will be announced on November 5, followed bt the one one for 2024 on December 10.

What the Big Four Banks Are Saying

Australia’s Big Four banks agree that interest rates have peaked, but they differ on when the RBA might make its first move to cut the cash rate.

• Commonwealth Bank (CBA): CBA remains optimistic about a 0.25% cash rate cut in December 2024. They pushed their forecast from November to December due to recent strength in employment growth.
• NAB: NAB has brought forward its forecast for an RBA rate cut to February 2025, rather than May. They anticipate a 0.25% decrease to 4.1% in February, with subsequent cuts each quarter, reaching 3.1% by early 2026.
• Westpac: Westpac expects the cash rate to remain unchanged until February 2025, after which they forecast four 0.25% cuts throughout the year.
• ANZ: ANZ also predicts the RBA will begin an easing cycle in February 2025.

What Does This Mean for Homeowners?

If lenders pass on the cash rate cut, homeowners with variable interest rates could see a reduction in their mortgage repayments.

For instance, a 0.25% cut would reduce monthly repayments on a $600,000 loan by approximately $92, bringing them down to $3,907 per month. For those with a $750,000 mortgage, the saving would be around $114 per month.

Always Here For You

While a cash rate cut is likely within the next four months, and this will bring some cashflow relief to borrowers, if you want to review your home loan now, give us a call.  We can take a look to see if your current loan is still meeting your needs, is at a competitive interest rate and consider any other options that might suit your circumstances (things such as fixed rates or a change in loan repayment type might suit your circumstances).

We’ll guide you through whether refinancing could be a smart move in the current mortgage environment. We’ll also provide advice on interest-saving features like offset accounts and redraw facilities.

Book at time here to discuss your situation and options with us.