Competition between lenders is heating up ahead of the Reserve Bank’s board meeting next week.
With economist forecasts and market pricing pointing to a 0.25 of a percentage point interest rate cut as a near-certainty next Tuesday, some mortgage borrowers may already have access to lower rates.
Canstar’s data insights director Sally Tindall says more than 24 lenders have cut their fixed rates in the past month.
“We are now seeing fixed rates fall into the 4’s … we typically see fixed rates start to come down ahead of an anticipated RBA rate cut,” she said.
“What is interesting at this point in time is we’re also seeing new customer variable rates start to fall.“
Canstar’s Sally Tindall says more than two dozen lenders have reduced fixed home loan rates. (ABC News: John Gunn)
The mortgage wars continue
The country’s biggest bank, the Commonwealth Bank, grew its home loan book by more than 4 per cent in the first three months of this year.
Last week, it cut its variable rate to 5.84 per cent to match rivals Westpac and ANZ.
“The competition in the mortgage market is alive and kicking,” says Ms Tindall.
“We expect it to continue heating up.
“There are 35 lenders on our database offering at least one variable rate under 5.75 per cent; you can actually do better than what the big banks are offering,” said Ms Tindall.
The official cash rate is currently sitting at 4.1 per cent.
Most economists are predicting a quarter of a percentage point cut when the Reserve Bank meets next week, with NAB forecasting a double rate cut of half a percentage point.
“If you look at the threat from the global trade situation, the down-trend in inflation and weak consumer spending — they point to rate cuts,” AMP Shane Oliver chief economist says.
Dr Shane Oliver says global and domestic factors set the stage for lower interest rates. (John Gunn.)
What would a rate cut look like for borrowers?
If the RBA does cut interest rates by 0.25 of a percentage point and lenders pass it on in full to borrowers, this is how much you could save:
| Loan size | New monthly repayments | Drop in monthly repayment |
|---|---|---|
| $500,000 | $3,164 | -$76 |
| $600,000 | $3,797 | -$91 |
| $750,000 | $4,746 | -$114 |
| $1,000,000 | $6,328 | -$152 |
| Source: Canstar.com.au. based on an owner-occupier paying principal and interest with 25 years remaining in May 2025. Calculations assume banks pass on the cut in full the following month, and that the current rate is 6.06%. | ||
Mouilk Naik is currently looking for the best variable interest rate on offer.
Sydney home owner Mouik Naik is hopeful about a rate cut when the Reserve Bank board meets next. (ABC News: Daniel Irvine)
His home loan is about to expire, after four years on a very low fixed rate of 1.99 per cent.
“I feel very lucky that I have been on this low rate for such a long time,” he says.
“Coming out of the fixed rate and jumping on to the ranges of 6 per cent is uncertain and it makes you feel nervous.”
Repayments on his $470,000 mortgage will likely increase by about 50 per cent, so he’s shopping around by speaking directly to his current lender, but also using a mortgage broker.
“I would prefer to stay with my current bank as things are easy,” he said.
But his loyalty is by no means guaranteed.
“If other banks are offering substantially better deals, I wouldn’t mind switching.“
How does fixed versus variable stack up?
Canstar’s Sally Tindall has run the numbers on whether fixed or variable rates end up being cheaper over the next two years, for a home owner with a $600,000 mortgage.
Her calculations assume three cash rate cuts through to the end of 2025.
The fixed rate option would cost a home owner only about $640 more in interest than if they had opted for the lowest variable rate.
| Rate today | Total interest over 2 years | |
|---|---|---|
| Lowest variable | 5.59% | $58,046 |
| Lowest 2-year fixed | 4.99% | $58,686 |
| Difference | -0.6% | +$640 (fixed slightly more expensive over the period) |
| Source: Canstar.com.au. Based on owner-occupier, paying principal and interest with $600,000 loan in June 2025 and 25 years remaining. Assumes 3 cash rate cuts to end of the year and cash rate remains steady following this. Calculations are estimates and do not include fees or any extra repayments. | ||
“It is a line ball call over the next two years about which option comes out cheaper in terms of fixed and variable,” she notes.
“Don’t play the RBA crystal ball gazing game — take a step back, see what suits your finances and spend your time trying to find a competitive deal.”
Customers are weighing up fixed and variable home loan options ahead of the Reserve Bank’s May meeting. (Adobe Stock)
What’s next for interest rates?
Most economists are forecasting more rates to come in this cutting cycle.
“For the remainder of the year we’re expecting at least another cut in August, possibly another one in November and one more early next year in February,” Dr Oliver says.
“Ultimately, taking the official cash rate down to around 3.1-3.35 per cent.”
Among the major bank economics teams, ANZ expects the cash rate to hit 3.35 per cent by August, CBA is tipping it to reach the same level by the end of the year, as does Westpac.
NAB is an outlier, expecting a double cut next week, plus cuts in July, August, November and February, to take it to 2.6 per cent.