The first rate cut since 2021, and the first rate move since 2023 was announced today. We all know that this has been a long-anticipated move for mortgage holders but what does it mean to you?

For many mortgage holders this will be the first rate decrease that has occurred since they have established their mortgage, so the team at Sphere Home Loans has outlined the most common questions we receive during a rate decline environment, and their answers:

When will I know if my rate decreases?

Your bank or lender will announce in the coming week or so their decrease. Generally, this will be in line with the RBA cut, however this can vary between banks, so if it is not the .25% it may be time to review.

Do I need to do anything to have the rate cut applied?

No. If you have a fixed loan there will be no change. If you have a variable loan your loan will automatically decrease in line with the bank or lender rate decrease. The decrease is off the lenders SVR (standard variable rate). For example, if your bank’s SVR is now 8% and you have a 2% discount off the SVR your rate is currently 6%. If the bank decreases their SVR by .25% your rate will now be 5.75%.

This will not occur straight away. The bank will send you an email or a letter of the date this will occur. It may not take effect until next month.

Is there anything I need to do?

All lenders will automatically reduce the variable rate. Most lenders will automatically reduce your direct debit as well, however some lenders will not. If you are with St George, for example, you will need to reduce your direct debt amount manually by contacting the bank as they leave it the same.

This is to encourage higher repayments, and you will not lose by leaving it there as the funds go off your home loan in extra repayments. If you do wish to pay the minimum you need to manually change this on internet banking or the call centre.

Do I need to review my lending?

A rate move is generally a great time to review your lending, however it is wise to wait until all the lenders move to ensure you are comparing apples with apples. One lender may move first and look lower for a short time. It is always best to wait some weeks until all lenders have announced and moved, then reach out to a mortgage broker if you wish to review.

Is it time to fix my loan?

We do not give advice on whether to fix your loan or not, however we can state a few facts.

A fixed loan is a contract with an exit fee or break-fee. If rates go down further, you will not get the benefit of the decrease and the break fee to close that loan increases. Rate decline environments are where we see more people enter arrangements where there is potential for larger break fees. It is always best to discuss fixing with your broker and be aware of all factors before you take an option to fix.

Banks encourage fixing and make it easier to make this change online, however this discourages clients learning all the facts before fixing. Fixing can ease the burden of change, and many clients choose to fix for those reasons.

Let’s have a chat before you make this move.

Changes to serviceability or how much I can borrow?

The other people who have questions are those not yet in the market or those looking to refinance or to further invest. It will take some time for this change to be presented in the bank’s calculators, but when it does change in the coming weeks your borrowing capacity will change.

If you would like to know more about what your borrowing capacity is, please reach out to the team and we can guide you on what you can borrow now and how this will potentially change when the banks pass on the rate cut.