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Borrowers to bunker down with rates to stay on hold... until 2025

Eden Radford avatar
Eden Radford
- 6 min read
Borrowers to bunker down with rates to stay on hold... until 2025

Borrowers should plan to bunker down for the remainder of the year under the pressure of the current cash rate of 4.35 per cent, as inflation gives the RBA little room for a rate cut this year.

The RBA Board is set to keep the cash rate on hold at the end of its meeting tomorrow and is expected to retain its neutral bias.

While the Board is likely to consider the case for a rate hike at the meeting, as it did in its last meeting back in May, recent wobbles in the monthly CPI indicator will not push the RBA back into hiking the cash rate on the back of this latest data.

That said, the Board is even more unlikely to be considering cash rate cuts in the near future.

Big four bank ANZ made this clear, when it changed its cash rate forecast last week, moving the timing of the first cut from November this year to February 2025.

Current big four bank cash rate forecasts

Next RBA moveTotal no. of cuts in 2024 + 2025
CBA- 0.25% pts in Nov-245 cuts to 3.10%
Westpac- 0.25% pts in Nov-245 cuts to 3.10%
NAB- 0.25% pts in Nov-245 cuts to 3.10%
ANZ- 0.25% pts in Feb-253 cuts to 3.60%

The differing economic views as to when the cash rate might start dropping highlights the uncertainty facing the RBA and the country.

Exactly when we will see the first RBA cut, and how many cuts are delivered in the cycle, will have a significant impact on household finances across the country (see table at end with impact of different economic forecasts).

Borrowers that were banking on a couple of rate cuts by the end of this year should rethink their budgets immediately and plan for one more hike, just to be on the safe side.

Impact of another 0.25% pt rate hike before the end of 2024

Based on an owner-occupier variable borrower paying principal and interest

Loan size todayIncrease to monthly repayments

Source: RateCity.com.au. Note: based on someone with 25 years remaining on their loan today.

How can borrowers inject wiggle room in their mortgage?

Negotiating your current interest rate, by either haggling with your current lender or refinancing to a lower rate lender should be a borrower’s first port of call.

Another strategy is to consider chipping extra cash, such as the stage three tax cuts, into your mortgage.

Not only will this help borrowers build up their buffer in case of a rate hike, it will also see them pay less interest to their bank.

RateCity.com.au research shows if a family earning $150,000 a year, where one person works part-time at half the wage, with $500,000 owing on their mortgage, put their stage three tax cuts into their home loan they would have an additional buffer of $3,194 in the first year.

If they went on to keep making these extra repayments for the remainder of their loan, they would potentially save $65,517 in interest and pay off their loan three years and eight months early.

Impact of putting stage three tax cuts into the mortgage

Based on a family with $500K owning earning a total of $150,000 where one person works part-time at half the wage

Monthly repaymentsLoan balance after 1 yearInterest paid - life of loanTime taken to pay off loan
No extra repayments$3,339$491,237$395,05725 years
Extra repayments$3,598$488,042$329,54021 yrs, 4 months
Difference+$259-$3,194-$65,5173 yrs, 8 months

Source: RateCity.com.au. Notes: based on an owner-occupier paying principal and interest with a $500,000 debt and 25 years remaining. Assumes mortgage rates change inline with the cash rate forecasts from CBA, Westpac and NAB and that the cash rate remains at 3.10 per cent thereafter. Assumes banks do not use a borrower’s extra repayment balance when recalculating monthly repayments.

RateCity.com.au research director, Sally Tindall, said: “If you’ve got a mortgage, don’t even daydream about a rate cut, but instead keep your head down and your home loan repayments up.”

“As 2024 unfolds, the RBA is looking less and less likely to pull the trigger on any cash rate cuts before the end of the year,” she said.

“While the RBA believes the cash rate could be at the peak, it won’t rule out the possibility of another hike and nor should borrowers.

“The stage three tax cuts will help some families get their budgets out of the red, but for those that are already managing to balance the books, spend some time thinking about how you might be able to make the most of this extra cash.

“Our research shows that if a family with a $500,000 mortgage earning $150,000 a year, put their stage three tax cuts into their home loan they could potentially build a buffer of over $3,000 in the next year alone.

“If they kept up these extra repayments until the end of their mortgage, they could potentially save over $65,000 in interest and pay off their loan almost four years early.

“That’s a compelling reason to continue keeping a tight lid on your budget when that extra money does land in your pay packet,” she said.

Potential impact of big bank forecasts on a borrower’s finances

Based on a $500,000 loan with 25 years remaining

No. of cuts by end 2025Drop in monthly repayments by Dec 2025Interest paid next 18 monthsDiff compared to no cuts next 18 months
ANZ forecast3-$223$45,120-$2,161
CBA, NAB, Westpac forecasts5-$368$43,576-$3,705
Difference between forecasts2-$145-$1,544-$1,544

Source: RateCity.com.au. Notes: based on an owner-occupier paying principal and interest with 25 years remaining on their loan. Assumes hikes come in the last month of each quarter unless specified. Assumes rate cuts are passed on in full.

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Product database updated 14 Jul, 2024

This article was reviewed by Research Director Sally Tindall before it was published as part of RateCity's Fact Check process.

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