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The borrowers saving $21k after this month's cash rate cut

Finder

Property investors and borrowers are the big winners from the Reserve Bank of Australia’s announcement slashing the official cash rate to 1.25 per cent.

According to the Australian Bureau of Statistics, the average home loan size in Australia is 384,700, while the average variable loan is 4.91 per cent.

For customers of lenders who have passed on the full rate cut, their interest rate would be 4.66 per cent, meaning $21,000 in savings over the life of the loan.

If Australians kept paying their mortgages at the previous rate, they could take nearly two years (22 months to be exact) off their loan, meaning they would not only be out of debt sooner but would save $43,000.

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Graham Cooke, insights manager at Finder, believes this is a unique point in Australia's history. 

“This is uncharted territory for us and if two more rate cuts are enforced this year, we could potentially see a rate of 0.75 per cent, which is unheard of in Australia.

“It’s almost hard to fathom what it was like for borrowers 11 years ago with a 7 per cent cash rate, let alone the 17 per cent cash rate back in 1990,” said Mr Cooke.

Will home owners just spend more?

Should historical market behaviour continue, Finder believes the average home loan size will increase following this cut as it has for eight of the last 10 rate cuts.

“The average home loan size increase following the last 10 rate cuts was 1.3 per cent. This could add almost $5,000 to the average size of home loans nationally,” said Mr Cooke.

“With interest rates dropping, and loans becoming both cheaper and easier to attain, this could very well be the turning point for the slumping housing market,” said Mr Cooke.

“However, these previous cuts occurred in environments where house prices were increasing, so we’ll have to wait and see how the market responds this time,” continued Mr Cooke.

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The borrowers saving $21k after this month's cash rate cut
Finder
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