Second RBA rate cut to drive uptick in refinancing

More than a third of Australian homeowners would consider fixing their mortgage if a second rate cut were to be delivered by the Reserve Bank of Australia.

New research from Money.com.au revealed next the RBA May 20 board meeting could trigger one in three borrowers to lock in a fixed rate, in a bit to protect themselves from future rate increases.

The survey found 29 per cent of homeowners would need to see a third rate cut before considering a fixed mortgage, while a smaller portion (15 per cent) would wait for at least four cuts.

A further 13 per cent of respondent would need five or more cuts before locking in a fixed rate – a stark contrast to the 9 per cent of borrowers who claimed February’s rate cut had been enough incentive to consider a fixed rate.

The release of the survey comes only days after the Commonwealth Bank declared war on its competitors by slashing interest rates two weeks before the RBA even meets.

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RBA Governor Michele Bullock during a press conference. Picture: NewsWire / Nikki Short

Money.com.au’s Mortgage Expert, Mansour Soltani, said homeowners considering a fixed

rate needed to get their timing right, with more rate cuts expected this year.

Fixed rates are generally considered by borrowers who prefer predictable monthly payments and avoid unexpected rate hikes.

“Borrowers should consider waiting until interest rates are closer to the bottom of the

downward cycle before fixing their mortgage,” Mr Soltani said.

“This will likely be when we see a wide selection of rates starting with a four for an owner-occupier loan with principal and interest repayments.

“Fixing too early in the downward cycle could cost you thousands in extra interest and hefty

break fees if rates continue to fall and you want to refinance again to a lower rate.”

Lowest advertised variable rates. Source: Canstar

With the RBA expected to deliver multiple rate cuts in 2025, borrowers will be deciding

whether to lock in a fixed rate now or wait for even lower rates.

Over the past five years, the average short-term fixed rate (three years or less) and the average new variable rate have been 4.08 per cent and 4.32 per cent, respectively, based on the RBA’s data over this period.

Australia’s Big Four banks have forecast between two and four rate cuts in 2025.

However, this will depend on economic conditions, including inflation, unemployment, wage growth, and consumer spending.

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