The Reserve Bank of Australia (RBA) has reduced the official cash rate by 0.25%, bringing it down from 3.85% to 3.60%. This move follows the RBA’s decision to hold rates steady in July, surprising both markets and borrowers at the time.

For Australians with variable home loans, this rate cut could mean extra breathing room each month — provided your lender passes on the full reduction.

Potential Savings for Borrowers

The rate cut could have the following impact on monthly repayments for owner-occupiers:

• $1 million mortgage – Repayments drop from $6,321 to $6,171 (saving $150 per month)

• $1.5 million mortgage – Repayments drop from $9,482 to $9,256 (saving $226 per month)

• $2 million mortgage – Repayments drop from $12,643 to $12,342 (saving $301 per month)

These savings can be used in different ways depending on your goals and financial strategy.

Option 1: Paying Down Your Mortgage Faster

By keeping repayments at their previous (higher) level, you can pay off your loan sooner and save significantly on interest.

Data shows that maintaining pre-cut repayments on a 25-year term could result in:

• $1 million loan – Paid off 14 months sooner, saving $48,955 in interest

• $1.5 million loan – Paid off 14 months sooner, saving $73,761 in interest

• $2 million loan – Paid off 14 months sooner, saving $98,217 in interest

Paying off your mortgage is essentially equivalent to earning a guaranteed, tax-free return equal to the interest rate charged on your loan. It also provides greater peace of mind by reducing debt levels.

Option 2: Investing the Savings

Another approach is to invest the monthly savings using a dollar-cost averaging strategy — investing a fixed amount regularly regardless of market conditions.

Using the historical average return of 8% p.a. for the S&P/ASX All Ordinaries Total Return Index over the past 20 years:

• $150/month could grow to $143,755 over 25 years

• $226/month could grow to $216,591

• $301/month could grow to $288,468

Even smaller contributions, such as $20 or $50 a month, can make a meaningful difference over time if invested consistently.

Weighing the Decision

While investing may offer higher long-term returns, it comes with risk. Once tax and fees are factored in, the net benefit of investing may be similar to the guaranteed return from paying down non-deductible debt.

When interest rates are higher, reducing debt often makes more sense. As rates fall and expected investment returns remain strong, the case for investing becomes stronger. Ultimately, the right choice depends on:

• Your risk tolerance

• Your time horizon

• Your broader financial plan and priorities

Our View at Cadre Capital Partners

It is important not to make changes to your financial strategy every time the RBA moves the cash rate. Short-term rate adjustments can be tempting, but remaining aligned with your long-term plan is crucial.

Whether you choose to use the savings to pay down debt, invest, or a combination of both, we recommend seeking advice to ensure your decision supports your lifestyle goals, tax position, and long-term financial security.

If you would like to explore how this rate cut could work for your personal situation, the team at Cadre Capital Partners is here to help.