RBA rate cut reaction times vary between banks

The RBA has finally cut the cash rate. But that doesn’t mean your repayments will reduce. Here’s how to fix it ASAP

The RBA finally passed down some relief to borrowers, cutting the cash rate to 4.1 per cent at its February meeting, but this will not mean instant relief for borrowers.

Major banks immediately followed suit, with NAB and Westpac announcing they would pass on the full cuts to borrowers within minutes of the RBA announcement. CBA quickly followed before ANZ was last to join the party.

Now comes the lag period before new rates come into effect for borrowers.

For NAB, ANZ and CBA customers, it will be 10 days, while for Westpac, it will be 14 days (4 March).

These timeframes were in line with the banks’ averages in recent years.

However, repayments may not immediately come down on those dates. In many cases, you’ll need to contact your lender if you want to reduce your minimum monthly repayments.

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Canstar data director Sally Tindall. Picture: Tim Hunter.

Canstar data insights director Sally Tindall said it’s important customers are aware of what happens next with their home loans, once a rate cut has been announced.

“When a bank announces they are dropping variable mortgage rates for existing customers, this rate change happens automatically on the effective date, which is usually 10 – 14 days following a change,” Tindall said. “This is important, because interest on a mortgage is calculated daily, so the day it goes down, you will be charged less interest.”

Typically, home loan repayment periods cover the previous month, but there can be variations between different lenders.

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“Even for the banks that do automatically adjust a borrower’s minimum repayments and subsequent direct debits, it could take a while for them to actually go down,” Tindall said. “Certainly (when rates were) on the way up they took between one to three months for the actual amount that comes out of your bank account to change.”

Commonwealth, Westpac, NAB, ANZ. Picture: NCA Newswire

Borrowers should also be aware that being charged less interest would not mean an automatic change to minimum monthly repayments. Instead, banks would give customers the option to maintain their current repayments.

“In a lot of cases, customers will have to contact the bank in order for changes to payments to occur,” Tindall said “It’s in the customer’s interest to keep the minimum payments higher if they can afford it, because it can save them a lot of money over time.

“Essentially, what you’ll be doing is making extra repayments, (which) will help reduce the amount of interest you’re charged each day and help you build a buffer in your mortgage that can also act as an emergency fund.

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“The savings from making extra repayments can easily run into the tens of thousands of dollars over the life of a mortgage. In some cases, they can lead to savings of over $100,000, particularly on a decent sized loan.”

Originally published as RBA rate cut reaction times vary between banks