Lower repayments could cost borrowers thousands

Homeowners might be cheering the recent interest rate cuts, but new research suggests many are missing a trick that could save them tens of thousands of dollars and years off their mortgage.

A survey by Money.com.au has revealed a surprising trend: a third of borrowers (33 per cent) are letting their bank automatically reduce their mortgage repayments after a rate cut, while a further 7 per cent are actively requesting the reduction.

While the lure of extra cash in your pocket each month is strong, experts warn this could be a costly mistake.

Mortgage Expert at Money.com.au, Debbie Hays, says borrowers need to look beyond the immediate gratification of lower repayments.

“Letting your lender automatically reduce your repayments might feel like a win because it frees up cash in the short term, but it comes with a big opportunity cost. You’ll slow down your loan progress and pay thousands more in interest over time,” she says.

“If your lender lowers your repayments by default after a rate cut, you don’t have to accept it.

“You can request to keep paying the original amount, and if you can afford it, I always recommend doing so to pay off your mortgage faster.”

RELATED

Leave now: 13 Aus banks still refuse RBA cut

Aus suburbs primed to boom after RBA cut

Aus mortgage switch surge hits 1084 loans a day

RBA Governor Michele Bullock speaks during the Monetary Policy Decision media conference in Sydney on August 12, 2025. (Photo by DAVID GRAY / AFP)

The research highlights a stark contrast: 39 per cent of borrowers maintain their original repayment amount simply because their lender doesn’t automatically reduce it, while a savvy 21 per cent are actively instructing their lender to keep repayments the same, in order to pay off their loan faster.

The hidden cost of lower repayments

The key takeaway? Those smaller repayments come at a hefty price.

By extending the loan term, you’re essentially handing over thousands more dollars to the bank in interest.

Hays emphasises the importance of this strategy, particularly in the early years of a mortgage.

“This is especially important in the first five to 10 years of your mortgage, when most repayments go toward interest rather than the principal,” she says.

“Because interest is front-loaded, lowering repayments early on slows your ability to chip away at the actual debt.

“By keeping repayments steady during this stage, you can dramatically reduce your total interest bill and knock years off your loan.”

MORE NEWS: Aussies stung by hidden home loan fees

Source: Money.com.au

Crunching the numbers: Real savings on offer

The potential savings are significant.

Following the August rate cut, a borrower with a $600,000 mortgage over 25 years would see their monthly repayments drop by $108, assuming a new rate of 5.49 per cent.

However, by maintaining their pre-cut repayment level, they could pay off their loan a year earlier and save a whopping $32,464 in interest.

Extrapolate that across all three rate cuts this year, and the figures become even more compelling.
A borrower with the same $600,000 mortgage would see their monthly repayments fall by around $273. But by sticking to their original repayment amount, they could slash more than three years off their loan term and pocket a staggering $82,009 in interest savings.

Take control of your mortgage

While some lenders automatically adjust repayments downwards when rates fall, others leave them unchanged, requiring borrowers to request a reduction.

Regardless of your lender’s policy, the message is clear: taking control of your mortgage repayments and resisting the urge to reduce them can lead to substantial long-term financial benefits. It’s a simple strategy that could save you a small fortune.

The post Lower repayments could cost borrowers thousands appeared first on realestate.com.au.