RBA cuts rates by 0.25% in August 2025 – Here’s how much you’ll save on your mortgage

The Reserve Bank of Australia has cut the official cash rate by 0.25 percentage points to 3.60%, marking its first move down since rate hikes paused earlier this year. The decision will save Australian homeowners billions in interest and give household budgets much-needed breathing room.

The RBA’s move follows inflation staying within its 2–3% target since May, slowing domestic spending per capita, and weaker global growth among key trading partners.

Example: On a $500,000 home loan, a 0.25% cut could save around $100 a week — over $5,000 a year.

After lifting rates above 4% to cool inflation, the RBA now sees room to loosen policy. The decision is driven by:

• Inflation returning to target since May.
• Softening global growth, especially among major trading partners.
• Domestic spending growth per capita slowing in 2025

Still, the RBA is cautious. A bigger or faster drop could weaken the currency or stoke inflation again.

Variable-rate borrowers feel changes almost immediately. With fixed-rate loans now at historic lows, most borrowers are exposed to cash rate shifts.

In early 2025, the average pass-through of a 0.25% cut was near full—saving households hundreds a month. Yet repayments still take about 10% of disposable income on average, the highest since 2012.

*Based on 6% variable rate over 30 years before cut; repayments rounded.

• Lower-income borrowers: Get the biggest relief as repayments take a larger share of income.
• Savers and retirees: Face lower deposit returns, which can offset any borrowing benefits.
• High-debt households: Gain large dollar savings but remain vulnerable if rates rise again.

Rate cuts don’t just alter budgets — they alter behaviour. Research shows:

• Wealth effect: Lower repayments make people feel wealthier, prompting more discretionary spending.
• Debt risk: Easier credit can tempt households into taking on more debt than they can handle.
• Confidence lift: When cuts are seen as a sign of economic stability, optimism rises and spending follows.

The RBA knows these shifts matter — it uses forward guidance to influence confidence before changes take effect.

The RBA sets the cash rate; banks decide what to do with it.

• In early 2025, big banks passed on cuts in full within two weeks.
• Smaller banks sometimes act faster or offer bigger discounts to win customers.
• Some lenders quietly delay passing on savings to existing customers while using sharper rates to lure new ones.

This means checking your rate is critical — you might not get the cut unless you ask.

1. Check your current rate: Compare it to average rates published by RBA and online lenders.
2. Call your lender on announcement day: Ask when and how much of the cut will be passed on.
3. Negotiate: Quote lower rates from competitors. Lenders often match or beat these to keep you.
4. Shop around: Smaller banks and credit unions may pass on the cut faster and in full.
5. Refinance if needed: Refinancing costs are often outweighed by long-term savings.
6. Use savings strategically: Make extra repayments now to shorten your loan term and cut total interest paid.

• Inflation risk: Too many cuts could push inflation back up, forcing sharp hikes later.
• Global headwinds: Weak growth abroad could limit the benefits of cheaper credit.
• Personal risk: Over-borrowing in a low-rate environment can lead to stress when rates rise.

A home loan health check could reveal you’re overpaying by thousands each year. Check your rate. Negotiate or refinance. Every basis point matters.