What happens to your loan when the RBA makes a rate cut?

When the Reserve Bank of Australia announces that they are reducing the Cash Rate, it sets off a chain reaction of transactions, generally led by the RBA itself.

This chain reaction ends up with our local banks reducing the interest rates on their home loans AND their deposits and savings accounts.

But it takes a little while to filter through to us all in full.

Once the RBA has made its announcement, banks will then consider how much they want to reduce their interest rates by and when they want to do it. This can often take anything from the same day to up to a week later.

When announcing that they are reducing them, the banks will also specify the date that the reduced rate will come into effect, which can be anything from five days to a month after the RBA announcement.

Depending on when in the month it is due to come into effect and when your regular loan repayment is due, you might only get a week or two of the lower interest rate impacting your loan repayment. If that's the case, you'll then need to wait until the following month, to get the full month's impact of the lower interest rate (particularly if you repay your loan monthly).

In the end, it can take two, perhaps as much as two-and-a-half months before you seethe full saving of an interest rate cut reflected in your bank account! It definitely doesn’t happen overnight - even though we all wish it did.

So watch the announcements from lenders (and us) on when your bank is changing their interest rate for you; then keep an eye on your loan to make sure that the interest rate reduction is reflected.

And if it's not as low as you think it should be, then reach out to HoLo to see what else may be available for you.

If you’d like to know more, book an appointment below or contact us.

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