What the latest RBA cash rate drop means for you

On Tuesday, the Reserve Bank of Australia (RBA) cut the official cash rate by another 0.25%, since the last cut back in February – bringing it down to 3.85%. Marking the lowest level since May 2023, all four of Australia’s big banks were quick to announce they would be passing on these rates to their borrowers.

On the back of this announcement, many Australians are now looking to ease financial pressure or take the next step towards homeownership. But what does a rate cut actually mean for your finances?

Here’s what you need to know…

Will my home loan repayments drop?

If you’re on a variable home loan, there’s a good chance your lender may pass on the rate cut in full or in part, leading to lower minimum repayments. This could ease some of your monthly expenses and create extra room in your budget.

But here’s a tip: if you’re financially comfortable, consider keeping your repayments at the current level. Doing so can help you pay off your loan faster and reduce the overall interest paid across the life of your mortgage!

Could this improve my borrowing power?

Potentially… When interest rates go down, your borrowing capacity may go up, because lower repayments can free up more of your income. This means you might be able to borrow more for a home than before.

But bigger isn’t always better. It’s important to make sure your future mortgage fits your long-term budget and lifestyle – not just what the numbers say on paper.

When will my lender pass on my rate?

Whilst a number of lenders are still yet to confirm whether they will be passing on the cut or not – at least 30 lenders have already indicated that they will be passing on the interest rate cut, in full for variable home loan customers, with effective dates varying over the coming month.

Is now a good time to refinance?

Absolutely – refinancing could help you take advantage of lower interest rates, especially if your current rate hasn’t kept up with the market. Whether it’s switching to a lender offering a better deal or negotiating with your existing one, refinancing might reduce your repayments, shorten your loan term, or free up equity. However, it’s important to chat to your broker about how you may need to factor in any associated costs and ensure it aligns with your broader financial goals.

How does this impact the broader economy?

Lower rates are often used as a tool to stimulate spending and investment. They make it cheaper to borrow, which can encourage home buying and construction — but also impact the housing market and pricing trends.

During periods of reduced economic activity, the RBA may cut rates to help boost consumer confidence. As a borrower, that can mean it’s a strategic time to review your loan, consider refinancing, or explore new purchasing opportunities.

What about personal loans or credit cards?

Unlike home loans – credit cards and personal loan rates don’t always respond to changes in the cash rate. Nonetheless, with rates dropping overall, now might be a good time to consolidate debts or refinance if you’re paying high interest elsewhere.

Will rates stay low?

While no one has a crystal ball, many economists are expecting rates to remain steady – or even fall further, across the rest of 2025. That being said, market conditions can change quickly, so it’s wise to plan for flexibility in your repayments and avoid overextending based on this month’s rate cut alone.

So what’s next??

Whether you’re buying your first home, refinancing an existing loan, or simply want to better understand what this rate cut means for your finances, the team at UFinancial is here to help.

We’ll break down what’s changing, what it means for you, and how to make smart, confident financial decisions moving forward. Ready to talk your options? Reach out to a UFinancial team member today!!