February rate cuts: What to ask your mortgage broker

The RBA confirmed an 0.25% cut to the cash rate yesterday marking the first time there has been a decrease since November 2020. The move will bring relief to households with a mortgage, property investors and first homebuyers alike.

The new cash rate of 4.10% signals a new cycle where it's crucial to ensure you're getting the best deal from your lender.

"Everyone's been hanging out for these rate cuts," says Blue Mountains-based Mortgage Choice broker Rob Lees. "People are going to be able to afford to borrow more, and more people will qualify to refinance.

"This will likely bring more buyers into the market and prompt people to start listing properties. It's going to get things moving."

All four big banks have confirmed they will pass on the rate cut in full, meaning households with a standard variable rate mortgage will see a drop in monthly repayments as their interest component reduces.

On an average, Mr Lees calculates repayments on a 30-year loan of $500,000, this will be down by around $80 a month.

ANZ, Commonwealth Bank and National Australia Bank will pass on the cut from 28 February, with Westpac to follow in early March.

'The Reserve Bank of Australia and the interest rate': youtube.com.au/mortgagechoice

With a downward cycle expected to energise the mortgage market, it's the perfect time to check in with your mortgage broker.

Here are some questions worth asking:

How are banks reacting to the RBA rate cut?

Banks' reactions to RBA rate cuts aren't always predictable. In fact, they're not obliged to cut their interest rates at all. However, with cost-of-living pressures so high, lenders are now under considerable pressure to pass on at least some of the cut to borrowers.

Mr Lees says each bank will attempt to remain competitive and this is where things can get interesting.

"They might play around on the edges with their discounting. For example, they may decide to keep their interest rates the same, they may discount them slightly or they may decide to pass on the cut in full.

All banks and lenders will respond differently to an interest rate cut and may pass all, some or none of the benefit onto mortgage holders. Picture: News Corp Australia

"If they're chasing more business, they may even offer a greater discount. It's a lever that all banks can use."

Your broker will be clocking lenders' responses carefully.

Is now a good time to buy my first home?

It's hard to say, according to Mr Lees.

"While it has been very difficult for many first homebuyers to secure the loan they need in a high interest rate environment, it has also been a good time to buy because a lot of first-time buyers can't afford to enter the market right now."

Now we're expecting to see slightly different forces at play.

"First-time buyers will be able to increase their borrowing capacity, which will see their affordability increase, but this is also going to bring more first homebuyers into the market, putting upward pressure on prices."

'Borrowing capacity explained': youtube.com.au/mortgagechoice

He advises buyers to check in with their broker.

"Have them rerun the numbers to see what your capacity is now."

Should I stay with my current lender or refinance?

With rate cuts always likely to invigorate the property market, banks will be eager to capitalise.

"When we shift to a downward cycle in the cash rate, people will be shopping around for loans and more people will be able to qualify for refinancing. In these times, banks will be working hard to win new business and retain their customers," says Mr Lees.

He adds that loan products that once looked competitive rarely remain so two years later.

"It's worth asking the questions. This can mean going back to your bank and requesting a bigger discount, or asking a mortgage broker to do so on your behalf."

If you have a variable mortgage, you can refinance with another lender at any time, although Mr Lees advises checking in with your current bank first.

"Sometimes people go through a whole refinancing process and then at the 11th hour, the outgoing bank will say, 'We can match that rate now'. Banks can play a lot of games.

"We have all the up-to-date interest rates from each lender at hand. If yours isn't competitive, we can look at other options."

Do I have to reduce my repayments?

Just because you're able to pay slightly less on your mortgage each month following a rate cut, that doesn't mean you necessarily should, says Mr Lees.

"While you're not being charged as much interest, you can still keep the same repayment going, which means you're going to pay down your loan faster."

Keeping the same repayments going on your mortgage is an option, even if the interest is lowered. Picture: Getty 

It's important to review how your repayments are set up, he adds. Your direct debit may change automatically to adjust to the new minimum payment required, or you might need to specify how much you want to pay each month to cover that minimum.

"If you can afford to do so, check in with your bank and ask them to continue debiting the same amount each month," he adds.

A broker can help you crunch the numbers to see how much time it will take to pay off your loan at this new rate.

What should I do with my investment property or properties?  

High interest rates have hurt property investors too, many who may have struggled to hold onto their assets due to larger loan repayments.

"Rates for investors are generally a little bit higher than for owner occupiers," says Mr Lees.

'The hottest investor suburbs for 2025': youtube.com.au/mortgagechoice

"Once again, it's time to assess how your discount with your lenders sits with the rest of the market and ensure your mortgage is competitive."

How will a series of rate cuts impact property prices?

While a mortgage broker — or indeed anyone — can truly answer this question, Mr Lees expects the market will undergo a period of adjustment.

He believes a downward rate cycle will likely encourage more first homebuyers into the market as well as current property owners looking to upgrade. This will mean more people competing for property and potentially higher prices.

However, a greater supply of stock could relieve that pressure, he adds.

"Hopefully, we'll find a new equilibrium."