Latest RBA cash rate insights – repayment savings of $6,825 projected by December 2025

The latest RBA cash rate announcement came as no surprise, keeping the cash rate on hold at 4.35%, with most economists agreeing the next move on rates will be down.

What does this mean for borrowers?

Well, borrowers could be thousands of dollars better off with substantial savings forecast for loan repayments over the next two years, according to a new analysis by Canstar.

The analysis reveals that borrowers anticipating interest rate cuts stand to benefit significantly, with potential savings of up to $6,825 in repayments projected by December 2025 if the big banks' cash rate forecasts materialise.

All big four banks forecast rate cuts of between 0.75 and 1.5 percentage points from spring onwards.

If passed on in full, big four bank customers repaying an average $600,000 loan at a current interest rate of 6.90%, could save between $3,217 and $6,825 in repayments or anywhere from $4,092 to $8,808 in interest by the end of next year.

However, the analysis underscores the importance of cautious optimism, as historical data from the Reserve Bank of Australia's (RBA) previous rate-cutting cycles reveals a gap between cash rate cuts and those passed on by the major banks.

Between June 2019 and November 2020, the RBA cut the cash rate by 1.40 percentage points, yet the big four banks only passed on an average of 0.92 percentage points or 66% of these cuts borrowers.

If the RBA cuts the cash rate by 0.25 percentage points and just 66% (the equivalent of 0.17 percentage points) is passed on during each forecast rate cut, borrowers at one of the big four banks might only save between $2,239 and $4,769 in repayments or up to $6,097 in interest by December next year.

Canstar's finance expert, Steve Mickenbecker said:

“A rate cut of any kind will be a welcome relief for many borrowers battling higher repayments and the compounding cost of living crisis.

If the big bank rate cut forecasts materialise, borrowers could see substantial savings in their repayments and the interest paid over the coming eighteen months.

Borrowers have borne the brunt of the Reserve Bank’s fight against inflation, coping with not just the higher cost of living but also loan repayments that have increased through the roof.

At last, they can feel that the countdown to lower interest rates has started.

In the last cash rate cutting cycle the big banks held back part of the Reserve Bank cuts when they eventually came.

This time around borrowers should not allow their relief at receiving a repayment reduction to persuade them to accept anything less than the full RBA rate cut.

Even the most optimistic forecast from the big banks puts the first Reserve Bank cut six months away.

Bringing a rate cut forward by refinancing into a lower rate loan now will have borrowers double-dipping on savings and bringing them forward. It’s time to look for a better rate now and not wait for the Reserve Bank.”

About Chris Dang Chris Dang is an accountant by training and has worked in the Financial Planning industry for many years. Chris brings together property, accounting, and financial planning experience to help clients of Metropole Wealth Advisory create a holistic plan for their wealth.