How much of the RBA rate cut do lenders pass on to borrowers?


Kate Cowling
Aug 1, 2016( 1 min read )

When the Reserve Bank of Australia cuts its official cash rate, there is no guarantee lenders will then pass that cut on to lenders by way of lower interest rates. 

Sometimes lenders pass on the cut in full, sometimes they partially pass on the cut, sometimes they don’t at all. When they don’t, they often defend the decision by saying they need to balance the needs of their shareholders with the needs of their borrowers. 

As the attached graph shows, more recent cuts have seen less lenders passing on the full RBA interest rate cut; the average lender was more likely to pass on about two-thirds of the 25 basis points cut to its borrowers. image002


Related FAQs

Refinancing is when you change your home loan from one loan to another – provided either by the same lender or by switching to a different lender. When you refinance, you are technically paying out your old home loan early and starting up a new one.

Switching lenders is often much simpler than many Australians believe, and can make a significant difference to the finances and lifestyles of many home owners.

To help make comparing different home loan offers simpler, RateCity will compare your financial profile to the offers in the Switch & Save Sale, and filter out the loans that aren’t suitable for you, e.g. investor loans if you’re an owner-occupier. We’ll also calculate the potential savings of each loan compared to your current mortgage, and summarise the benefits offered by each lender so you can make a more informed decision.

Here’s how the refinancing process works at the Switch & Save Sale:

  • Proceed through the Switch & Save Sale wizard, and enter your home loan details and contact details
  • Select a loan out of the ones on sale
  • The lender will contact you to help you to answer any questions and help with the application process
  • Complete your application within 30 days of the event finishing if you decide to proceed
  • Have your property valued by the lender
  • Await approval
  • Settlement

Depending on your lender, this process could take as little as 3 days or as long as 30 days.

If you choose to proceed with an application to refinance, this usually requires some paperwork, such as confirmation of your identity, your income, your residence and any other debts. Once you’ve selected one or more home loan offers from the options at the Switch & Save Sale, the lender(s) will soon be in touch to guide you through their application process and provide assistance if required.

There are several potential benefits to refinancing your home loan, which won’t always apply to every borrower. These benefits include:

  1. Saving  money by moving to a lower interest rate – Moving to a lower interest rate can potentially save you thousands. Of course, you need to make sure your new loan has all the functions you need, and that you are happy with the service your new lender provides.
  2. Paying off your home loan faster – If you refinance onto a lower interest rate but keep making the same monthly repayments, you can pay off your loan faster, and save additional money by doing so. The longer it takes you to pay off your loan, the more you will pay your lender in interest.
  3. Find a home loan that suits your changing needs – A typical home loan lasts for 30 years, and a lot can happen over that time. When you switch to a new lender, it’s worth considering whether these features are important to you:
    • Extra repayments
    • Redraw facility
    • Offset Account
    • Interest only payments
    • Call centre/branch support
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