RBA Rate Cuts: What They Mean for Your Mortgage

The Reserve Bank of Australia cut the cash rate twice in 2025, bringing it down from 4.35% to 3.85%. The February cut was the first reduction since November 2020. The May cut followed four months later. Both moves put downward pressure on mortgage rates across the board, and lenders responded with varying speed and generosity.

If you hold a variable-rate home loan, your repayments have dropped. If you hold a fixed-rate loan, nothing has changed until your fixed term expires. And if you sit on the fence about refinancing, the rate cuts give you a concrete reason to compare offers from competing lenders.

The RBA sets the cash rate, which is the interest rate banks charge each other for overnight lending. Banks use this rate as a baseline for pricing their own products. When the cash rate drops by 0.25%, most variable-rate home loans drop by a similar margin, though banks have full discretion over how much they pass on.

CommBank, Westpac, NAB, and ANZ all passed on the full 0.25% from the February 2025 cut. The May cut saw similar pass-throughs, though several smaller lenders held back 0.05% to 0.10% to rebuild margins. You cannot assume your lender will pass on every cut in full. Check your latest statement or call your lender to confirm your current rate.

Fixed rates operate on a separate mechanism. Banks price fixed loans based on swap rates (the wholesale cost of locking in money for a set period). Swap rates move on bond market expectations, not directly on the cash rate. Fixed rates can fall before a cash rate cut if the market prices it in, and they can rise after a cut if inflation expectations shift.

The relationship between the cash rate and your mortgage rate includes a margin. Banks add 1.5% to 2.5% on top of the cash rate to cover their operating costs, risk, and profit. At a 3.85% cash rate, a typical variable mortgage sits between 5.70% and 6.10%. That margin has widened over the past decade. In 2015, the average margin was about 1.8%. In 2026, it sits closer to 2.1%, which means banks keep a larger slice of each dollar you pay in interest.

The combined 0.50% reduction from both 2025 cuts translates to measurable monthly savings. The exact dollar amount depends on your loan balance, remaining term, and repayment type. Here is what the savings look like across common loan sizes on a 25-year principal-and-interest loan.

A borrower with a $600,000 loan saves $179 per month, or $2,148 per year. Over the remaining life of the loan, that 0.50% reduction saves over $30,000 in total interest, assuming rates stay at this level. This calculation assumes your lender passed on the full 0.50%. If your lender held back even 0.10%, your savings shrink, and you should consider switching.

One strategy worth considering: keep your repayments at the old, higher amount. The difference flows into extra repayments that reduce your principal faster. On a $600,000 loan, maintaining the old repayment schedule shaves about 14 months off your total loan term.

Interest-only borrowers see smaller monthly savings from rate cuts because their repayments consist of interest alone, with no principal component. A $600,000 interest-only loan at 6.50% costs $3,250 per month in interest. At 6.00%, that drops to $3,000, a $250 monthly saving. The catch: interest-only loans do not reduce your balance, so you owe the same $600,000 when the interest-only period ends. The RBA and APRA have flagged concerns about borrowers who rely on interest-only periods without a plan to transition to principal-and-interest repayments.

Investors with negatively geared rental properties feel rate cuts differently. Lower interest costs reduce the tax deduction available on the investment property. If you claim $30,000 per year in interest and the rate cut reduces that to $28,500, your deductible loss shrinks by $1,500. At a 37% marginal tax rate, that means $555 less in tax savings. The net benefit of the rate cut is the $1,500 interest saving minus the $555 reduction in tax benefit, giving you a $945 annual gain. Run the numbers for your specific marginal rate. If you hold investment property, check current property management fees as another cost that affects your returns.

Each lender made its own call on how much to pass through. The big four banks passed on the full amount for both cuts. Some digital lenders offered even larger reductions to attract new customers. Others held back a portion, citing funding cost pressures.

Digital lenders like Athena and Ubank sit 0.30% to 0.40% below the big four. The gap adds up. On a $600,000 loan, the difference between 6.04% (CommBank) and 5.69% (Athena) comes to $126 per month. That is $1,512 per year, with no change to your repayment behaviour.

If your lender did not pass on the full cut, you have a legitimate complaint. Contact them and ask for a rate review. Banks retain borrowers more cheaply than acquiring new ones, and most have a "retention rate" they offer customers who threaten to leave. You lose nothing by asking.

After a rate cut, borrowers face a common question: lock in a fixed rate now, or stay variable and bet on further cuts? The answer depends on your financial situation and risk tolerance.

The argument for variable: the RBA flagged further cuts in 2026 if inflation continues to moderate toward the 2-3% target band. If two more 0.25% cuts come through, variable borrowers benefit from each one. Fixed borrowers miss out.

The argument for fixed: certainty. A 2-year fixed rate of 5.49% (available from several lenders as of June 2026) locks your repayments in place regardless of what happens. If inflation spikes and the RBA reverses course, you are protected. Fixed rates also make budgeting straightforward.

A split loan offers a middle path. You fix a portion (say 60%) and leave the rest variable. This gives you partial protection from rate rises while still allowing you to benefit from further cuts. Most lenders offer split facilities at no extra cost.

History shows that borrowers who fix at the bottom of a rate cycle often regret it. In 2021, many borrowers locked in 2-year fixed rates at 1.89%-2.19%. Those rates looked generous at the time. But variable rates stayed below 3% until mid-2022, and borrowers who stayed variable paid less overall during that period. The lesson: fixing works best as insurance against worst-case outcomes, not as a bet on timing the market.

Rate cuts create a window for refinancing. Lenders compete harder for new business after a cut, and cashback offers of $2,000 to $4,000 appear from several banks targeting switchers. The economics of refinancing depend on three factors: the rate difference, your loan balance, and the costs involved.

Refinancing costs between $500 and $1,500 in discharge fees, application fees, and settlement costs. Some lenders waive application fees for refinancers. If the rate difference saves you more than the switching cost within the first year, the move pays for itself. On a $500,000 loan, a 0.30% rate reduction saves $1,200 per year, enough to cover most switching costs within months.

Watch out for fixed-rate break costs. If you hold a fixed-rate loan and want to refinance before the fixed term ends, your lender will charge a break fee. This fee can run into thousands of dollars, depending on the rate difference and remaining term. Calculate the break cost before committing. Your lender must provide this figure on request.

Refinancing also resets your loan term. If you had 20 years left and refinance into a new 30-year loan, your monthly repayments drop, but you pay more interest over time. Ask your new lender to match your remaining term, or make extra repayments to stay on track. Researching where to buy? See our list of the best investment suburbs in Australia.

A mortgage broker can handle the refinancing process for you at no cost. Brokers earn a commission from the new lender (a trailing commission of 0.15% to 0.20% of the loan balance per year, plus an upfront commission of 0.50% to 0.65%). The broker compares offers from 20 to 40 lenders on their panel and manages the application, valuation, and settlement. If you do not have a broker, the Australian Finance Group, Aussie Home Loans, and Mortgage Choice are three of the largest broker networks in Australia.

The RBA's February 2025 Statement on Monetary Policy noted that inflation had moderated faster than expected. Trimmed mean inflation fell to 3.2% in the December 2024 quarter, down from 4.2% a year earlier. The May statement confirmed the trend, with trimmed mean inflation at 2.9%, back inside the target band for the first time since 2021.

Financial markets, as of mid-2026, price in one more 0.25% cut before the end of the year, which would bring the cash rate to 3.60%. The RBA has been cautious, signalling that it will not cut faster than inflation data justifies. Governor Michele Bullock repeated that the Board would assess conditions "meeting by meeting" without committing to a schedule.

Several risks could delay further cuts. A rebound in services inflation, a spike in global oil prices, or a weaker Australian dollar (which raises import costs) would all give the RBA reason to pause. On the other side, a deterioration in the labour market or a sharper-than-expected housing downturn could accelerate the cutting cycle. For buyers weighing up options, our guide on building vs buying a house compares the financial trade-offs.

For borrowers, the practical takeaway: rates have peaked and are heading down, but the pace remains uncertain. Build your budget around current rates, treat any further cuts as a bonus, and use the savings to pay down debt faster rather than increasing spending. The borrowers who benefit most from rate cuts are those who treat the savings as an accelerant, not a windfall.