How doing nothing with the RBA rate cut could save you $80,000 on your home loan

While many people will understandably aim to capture immediate cash flow benefit in the form of lower home loan repayments, the less glamorous move of leaving your repayments the same could unlock greater financial rewards down the track.

As the Reserve Bank of Australia (RBA) widely expected to cut the cash rate from 3.85 percent to 3.60 percent at its upcoming board meeting, many homeowners are weighing the options: reduce their monthly repayments, or keep them steady to chip away at the principal balance faster. While news headlines focus on immediate relief, the latter option of leaving that RBA Rate cut could deliver big long-term savings for you home loan

Let’s dive into the numbers—and the strategic rationale behind such a choice.

1. What’s Expected—and What It Could Mean

Surveys show a 25 basis-point cut to 3.60 percent is highly anticipated. According to a Finder survey, this move would yield annual savings around $2,884 on a $500,000 mortgage, assuming banks pass on the full cut Others estimate roughly $105 per month, or AUD 1,262 a year 

If banks respond quickly—as they did following earlier cuts—borrowers could see their rates drop almost instantly.

2. What Happens If You Keep Paying the Same Amount

Instead of lowering your monthly payments, continuing to pay at the pre-cut level means the extra amount goes directly to reducing your principal. Over time, this can significantly slash both interest costs and the total loan term. For instance:

• A $600,000 mortgage could save ~$125/month, or $1,500/year, leading to around $80,000 in interest savings over 30 years, and more than 2 years shaved off the term View.

• On a $500,000 mortgage, even modest extra repayments add up. If that extra $100 per month is consistently applied toward principal, the impact becomes powerful over decades through compounding.

  
  

3. Illustrative Example

Assumptions:

• Loan size: AUD 500,000

• Original interest rate: 3.85%

• New interest rate (post-cut): 3.60%

• Loan term: 30 years

  
  

Option A – Reduce repayments:Monthly payment drops from, say, AUD 2,324 to around AUD 2,281 (figures hypothetical), saving ~AUD 43/month immediately.

Option B – Stay the same:Continue paying AUD 2,324/month—even with the new 3.60% rate. That extra AUD 43 becomes an additional principal payment, accelerating payoff and cutting interest dramatically. Over the life of the loan, this simple strategy can save tens of thousands of dollars and shave years off your mortgage.

4. Why RBA Rate cut Home loan savings It Works

Every extra dollar toward principal reduces the component on which interest accrues. Each following repayment then has a slightly lower interest portion and a higher principal portion, accelerating the amortization. Mortgage calculators will show this as a ‘shorter loan term’ and lower total interest.

5. Real-World Impact

Borrowers who proactively maintain their payment levels after a rate cut benefit in two ways:

• Financial Discipline: They resist temptation to spend eased repayments and instead invest in debt reduction.

• Psychological Wins: Even small extra repayments build momentum toward paying off debts faster.

Financial advisors often recommend this strategy for anyone within reach of extra cash flow—from bonuses, savings, or cheaper groceries. It’s a strong way to leverage rate cuts for long-term gain.

6. Other Considerations

• Bank Flexibility: Most lenders allow extra principal repayments without penalty, but always check your terms.

• Emergency Buffer: Ensure you're not compromising liquidity—add savings before putting every extra cent into the mortgage.

• Financial Goals: If you have high-interest debts or lack an emergency fund, those may take priority over accelerated mortgage repayments.

  
  

7. Summary

• A 25-basis-point RBA cut expected tomorrow could free up ~$105–125/month or upward of $2,800 annually for a $500k–$600k mortgage.

• Choosing to keep repayments steady rather than reduce them transforms this buffer into principal reduction.

• Over the span of a 30-year loan, this can translate into tens of thousands in interest savings and several years shaved off the mortgage term.

• It’s both a mathematically and psychologically sound strategy to capitalize on rate cuts—especially for those aiming to pay off their home sooner.

  
  

While many will understandably aim to capture immediate cash flow relief, the less glamorous move of staying the course with repayments can often unlock far greater financial rewards down the track.

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