After months of holding the cash rate steady at 4.35 per cent, the Reserve Bank of Australia has moved. The decision to cut by 25 basis points to 4.10 per cent signals a meaningful shift in the central bank's thinking — and for Australia's 3.2 million variable-rate mortgage holders, it is welcome news.
The Dollar Impact by Loan Size
A 25 basis point cut reduces the monthly repayment on a $500,000 loan by approximately $75. On a $750,000 loan — close to the median in Sydney — the saving is around $112 per month. On a $1,000,000 loan, borrowers can expect roughly $150 back in their pocket each month. These numbers assume lenders pass on the full cut, which the major banks have historically done within days of an RBA decision.
Will Banks Pass It On in Full?
Competitive pressure in the mortgage market has intensified significantly. With non-bank lenders and smaller institutions aggressively chasing market share, the major banks have strong commercial incentives to pass on the full cut quickly. Borrowers who have not reviewed their mortgage rate in the past 12 months should use this moment as a trigger to compare offers — the spread between the highest and lowest variable rates on offer in Australia currently exceeds 1.5 percentage points.
What Comes Next?
Markets are currently pricing in a further two cuts over the next 12 months, which would bring the cash rate to 3.60 per cent by the end of 2025. This is broadly consistent with the RBA's stated aim of returning inflation to the 2–3 per cent target band without engineering a sharp rise in unemployment. Our base case is for two additional cuts, though this is contingent on the labour market holding up and trimmed mean inflation continuing its gradual descent.
Fixed vs Variable: The Decision You Face Now
With the cutting cycle now confirmed, borrowers on variable rates will benefit first. Those considering fixing should be aware that fixed rates have already moved substantially lower in anticipation — the market is efficient, and by the time cuts are delivered, they are largely priced in. The sweet spot for many borrowers may be a split loan structure: fix a portion to lock in certainty, leave the rest variable to benefit from further cuts.
