What happens if the RBA cuts rates today: can I get them immediately?

On the first Tuesday of every month, with the exception of January, the Reserve Bank of Australia (RBA) holds a Board meeting to decide whether the cash rate will increase, decrease or remain unchanged.

The cash rate is the official interest rate that banks charge other banks to borrow money. If the RBA decreases the cash rate, the interest rate banks are charged when they borrow from other banks will be reduced.

If banks are able to save money from reduced interest rates, they will often pass on some or all of these savings to consumers, though they are not required to.

So, with speculation that November’s meeting may result in a rate cut, you might be wondering what that could mean for you.

What does an RBA cash rate cut mean for mortgage holders?

Mortgage holders with a variable interest rate home loan could see their interest rate reduced in response to a cash rate cut.

Once the RBA has announced a reduction to the cash rate, lenders will make a decision as to whether they intend to pass this on to their customers.

Some banks and lenders may pass on the full cut, while others might hold some of the cut back.

There is also potential for lenders to pass on the rate cut only to new customers. That’s why it can be beneficial to track home loan interest rate movements in order to find out which lenders are offering the most competitive rates.

In the instance that your mortgage provider has made the decision not to pass on the rate cut to existing customers, you might consider refinancing your home loan to take advantage of more competitive offers from other lenders.

How quickly do lenders pass on rate cuts to borrowers?

In the past, some lenders have announced rate reductions as quickly as within minutes of the RBA’s decision being released, while others have taken up to a week to publicise their movements.

But regardless of the speed at which lenders release this information, rate reductions can take upwards of several weeks to come into effect.

How much could I save if my lender passes on the rate cut?

The average mortgage holder could save $56 a month if their bank passes on a 0.25 per cent rate cut on in full.

However, as a partial cash rate cut of just 0.15 per cent is predicted this time around, customers might only save $34. Meanwhile, a 0.10 per cent cut would result in savings of just $23, based on a $400,000 mortgage paying principal and interest.

Impact of a 0.25% rate cut

Impact of a 0.15% rate cut

Impact of a 0.10% rate cut

Source: RateCity.com.au. Calculations do not factor in fees.

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