RBA cuts interest rates – What it means for your mortgage
Tori Browne- 4 days ago
- 4 min read
Cash rate falls to 3.85% in May 2025 RBA decision
Published: 20 May 2025
In a widely anticipated move, the Reserve Bank of Australia (RBA) has officially cut the cash rate by 25 basis points, bringing it down to 3.85%—its lowest level since mid-2023.
This marks the second rate cut in the RBA’s newly forecasted "year of easing," following 13 consecutive rate hikes and an extended period of rate holds. The move is aimed at supporting household consumption and addressing signs of economic softening.
So what does this mean for Australian homeowners, and how can you take advantage of this rate shift?
A Quick Overview of the May 2025 RBA Rate Decision
Today’s RBA interest rate decision to cut the rate from 4.10% to 3.85% reflects growing concerns about weakening consumer spending, rising mortgage stress, and inflation easing faster than initially forecast.
The RBA noted in its statement that while inflation has declined significantly, growth remains soft, and household finances continue to show signs of strain.
Key drivers behind the cut:
Inflation tracking closer to target
Declining household consumption
High mortgage burden across variable-rate borrowers
A need to support employment stability in slow sectors
RBA's Official Commentary:
In its May 2025 statement, the Reserve Bank of Australia noted that inflationary pressures have continued to ease, with both headline and underlying inflation now within the 2–3% target range. The unemployment rate has remained steady, and employment growth has been firm. However, the RBA highlighted potential downside risks to the economy, including escalating global trade tensions, particularly stemming from U.S. tariffs, which could suppress global growth and exert downward pressure on domestic inflation.
How Will the Rate Cut Affect Your Mortgage?
If you're on a variable-rate home loan, you can expect lower interest charges once your lender applies the rate cut. Depending on your loan size and lender response, this could mean hundreds of dollars in monthly savings.
A borrower with a $700,000 loan on a 25-year term could save approximately $110–$130 per month once the cut flows through.
However, it’s important to note:💡 Your repayments may not automatically change. You might need to contact your lender to reduce your monthly instalments. Alternatively, you can maintain current repayment levels to pay off your loan faster.
When Will Lenders Pass on the Rate Cut?
Major Banks' Announcements:
CBA: Rate cut of 0.25% effective 28 May 2025
Westpac: Rate cut of 0.25% effective 4 June 2025
NAB: Rate cut of 0.25% effective 30 May 2025
ANZ: Rate cut of 0.25% effective 30 May 2025
We recommend monitoring your lender closely and reviewing your current rate.
What Should Homeowners and Borrowers Do Now?
Timely Review Recommended:
With the recent rate cut, it's crucial for borrowers to review their mortgage arrangements promptly. Delays in lender responses to rate changes can impact potential savings. Engaging with your lender or mortgage broker now can ensure you capitalise on the new rate environment and adjust your financial strategy accordingly.
✔ Review your interest rate – Ensure your current rate is still competitive.
✔ Consider refinancing – Especially if your bank delays passing on the full cut.
✔ Maintain existing repayments (if you can) – This helps reduce your loan balance faster and builds a repayment buffer.
✔ Speak to a broker – If you’re unsure what this means for your loan or need help reviewing your options.
What This Means for First-Home Buyers
Lower interest rates mean increased borrowing capacity and reduced monthly repayments. However, it’s important to remain cautious: as borrowing power rises, competition in the property market may also heat up again.
If you're looking to enter the market, now is the time to review your pre-approval options, eligibility for government schemes, and lender offerings.
Caution for Aspiring Homeowners:
While lower interest rates can enhance borrowing capacity, they may also stimulate increased demand in the property market, potentially driving up prices.
This scenario could make it more challenging for first-home buyers to enter the market, as heightened competition may offset the benefits of reduced borrowing costs.
Looking Ahead:
The RBA’s first rate cut in over 18 months signals a new chapter for Australian homeowners. While some relief is on the way, being proactive is key. Now is the time to review your loan, consider your next move, and make sure your mortgage strategy is working in your favour.
As the economic landscape evolves, further adjustments to interest rates may occur. Staying informed and maintaining flexibility in your financial planning will be key to navigating potential changes in the lending environment.
📩 Need help reviewing your loan or planning your next step?
Contact the Fync team today for a complimentary loan review.
How Fync can help you navigate interest rate changes:
At Fync, we’re committed to helping Australians make informed financial decisions, whether you're navigating home loans, interest rate changes, or refinancing options. With expert guidance and transparent advice, we help you stay ahead of market shifts and ensure your mortgage strategy aligns with your financial goals.
If you're considering refinancing, reviewing your loan structure, or simply want to explore your options, our experienced team is here to assist.
Visit the Fync website today to learn more and take control of your financial future.
*Disclaimer: Please note that the information provided in this communication is for general informational purposes only and should not be construed as professional advice. It is not intended to substitute for personalised financial, legal, or tax advice. Please consult a qualified professional before making any decisions based on the information provided.
