All eyes on a February rate cut: Here’s how to get the most out of it
All of the big four banks have now forecast a February rate cut, with NAB the last to make the call.
“We now expect the RBA to cut the cash rate by 25bps (basis points) in February,” NAB Group chief economist Alan Oster said.
“We still expect the cutting phase to be gradual, with the RBA taking the cash rate down to 3.1 per cent by February 2026.
The update came as the latest data from the Australian Bureau of Statistics showed a drop in underlying inflation from 3.5 per cent to 3.2 per cent in the December quarter.
That puts NAB in line with Westpac, which updated its forecast to a February rate cut following the latest ABS data, and CBA and ANZ, which previously made February rate cut predictions.
With economists expecting the RBA to hand down a rate cut, it is time for mortgage holders to ease financial pressure and cut loan costs.
Preparing for a pending rate cut
If the RBA does make a cut, some lenders will pass on all of it, while others won’t, mortgage broker and founder of Two Red Shoes Rebecca Jarrett-Dalton said.
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“Refinancing should save you more than around $2000 in the first year because there are around $1000 in costs involved in moving to a different lender, Jarrett-Dalton said.
“Compare the repayments to your current loan, and you hope to be saving around $100 a month on the new loan term.
“Don’t overlook using your comparison to negotiate with your existing lender as well, which has been very successful of late and involves no cost and virtually no effort. A broker could do this for you,” she said.
Beside the obvious potential saving from refinancing, it’s an opportunity to restructure your loan.
“Some shorter-term fixed rates are potentially attractive to fill the space while we watch rates decline, and you could look at splitting your loan to include these.”
First-home buyers
Jarrett-Dalton said first-time home-buyers who were circling the market looking for an opportunity to pounce should get their paperwork in order.
The first step is to prepare clean credit files and closure letters to prove that debts are paid.
“These can take a while to get if you’re trying to coincide with a loan application,” she said.
“A clear and clean savings history over the past three months and two recent payslips with no unpaid leave or other unusual deductions are also important to prepare now.”
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Jarrett-Dalton also advised being prepared to explain any voluntary deductions and having a demonstrable household budget.
For mortgagees contemplating extending their home loan to cover the cost of renovations, acting sooner rather than later could be more cost-effective. Photo: Getty
Preparing to refinance
For mortgaged households contemplating the chance to refinance, it’s time to do some market research, said Steven Tropoulos of finance and property advisory, Highfield Private.
“Many borrowers who secured loans during the peak of the rate cycle will most likely find opportunities to reduce their repayments as lenders adjust their offerings in response to interest rate policy changes,” he said.
“Reviewing loan terms now can help ensure that borrowers are positioned to benefit from potential rate reductions in 2025.”
While refinancing is primarily about securing a lower interest rate, it can also be an opportunity to adjust loan features and to pull out equity to better suit changing financial needs.
He said the refinancing process had become increasingly streamlined, with many lenders offering mortgage brokers fast-tracked approvals and digital verification processes.
“Typically, it involves assessing the existing loan, comparing all the banks, and submitting an application to the chosen lender that fits the needs and wants of that client,” he said.
“Once approved, the new lender arranges the transition with the broker, with the entire process generally completed within a few weeks.”
Preparing to extend your mortgage for renovations
For mortgagees contemplating extending their home loan to cover the cost of renovations, acting sooner rather than later could be more cost-effective, Tropoulos said.
“Construction costs have been increasing due to inflation, material shortages and ongoing supply chain constraints, with no indication that prices will decline. Delaying a renovation could mean higher costs in the future, both in terms of labour and materials.”
Refinancing typically involves assessing the property’s available equity or securing additional funding through a loan extension or construction loan.
Tropoulos said lenders would consider factors such as property value, loan-to-ratio ratio and the borrower’s financial position when determining eligibility.
This story first appeared on View.com.au. Read the original here
