RBA tipped to cut interest rates 4 times in 7 months: '$423 per month saving'

Aussie homeowners could soon get major mortgage relief after watching interest rates steadily climb to a 12-year high. The official cash rate has been on hold at 4.35 per cent since November last year and the Reserve Bank of Australia (RBA) has jacked the rate more than a dozen times since 2022.

It's been tough going for many Aussies across the country, with 52 per cent of homeowners telling Yahoo Finance that they're using more than 40 per cent of their salary on their mortgage. But the Australian Stock Exchange (ASX) Reserve Bank of Australia Target Rate Tracker has predicted there could be four rate cuts over a seven-month period.

The ASX tracker tipped the first rate cut to come in February next year, at 25 basis points.

RELATED

• Bleak 2025 interest rates call for struggling Aussie homeowners: 'Largely Ignored'

• Cash out warning as mortgage broker reveals home loan red flags: 'Massive'

• Budgeting trend young Aussies are using to help them become millionaires

Are you struggling with your mortgage and want to tell your story? Email stew.perrie@yahooinc.com

Three further cuts between February and August could bring the official cash rate down to 3.35 per cent.

Mortgage broker Maddie Walton told Yahoo Finance a 25 basis point drop on her $600,000 mortgage on a 5.25 per cent rate equates to a $125 per month saving.

"It doesn't sound like a lot but that's my fuel for a month or that part of my groceries for like a fortnight," she told Yahoo Finance.

"There's so much that can go towards that... it just gives you that a little bit of extra room."

If the official cash rate drops by 100 basis points, Walton could soon be pocketing an extra $500 per month by August next year.

Comparison site Finder revealed the average Aussie home loan sits at $641,143 and four rate cuts of 25 basis points would save a person around $423 per month or $5,076 per year.

What is the ASX's RBA Rate Cut Tracker?

The ASX updates its tracker at the end of each trading day and calculates a percentage probability of the RBA changing the official cash rate.

That percentage is based on the market-determined prices in the ASX 30-Day Interbank Cash Rate Futures.

Yahoo Finance contributor Ben Nash broke down how the Futures Market plays into what the RBA might do with its cash rate.

"So there's this huge global bond market where there's a lot of bonds traded and the bonds have different durations," he said.

"Some of them might be a one-month term, three-month term, six-month term, 12-month term, etc. And a lot of the bigger bonds are traded from governments or really large institutions... so fairly safe-type investments where you give them a certain amount of money and they promise to give you the money back and pay you a set interest rate.

"That interest rate is based largely around the [RBA] cash rate."

Nash said experts place a lot of importance on this market because it's "driven by people investing significant amounts of money on a global scale".

"They're putting the money where the mouth is," he said.

"It's not just commentary. It's not just the talking head saying something. It's people investing and trading large, large sums of money."

What is the RBA saying about interest rate cuts?

RBA governor Michele Bullock has largely ruled out a rate cut in 2024 and said the central bank will start to look at mortgage relief when inflation comes into its target zone of 2-3 per cent.

The central bank kept the 4.35 per cent rate on hold at the August meeting and it noted that “based on the information available at the time of the meeting, it was unlikely that the cash rate target would be reduced in the short term”.

But Aussie homeowners were thrown a future lifeline, with the central bank adding that “it was not possible to either rule in or rule out future changes in the cash rate target”.

Bullock admitted that even though June's GDP figures showed the Aussie economy grew by a 0.2 per cent, the numbers weren't going to sway the bank's outlook on rates.

She said unfortunately some homeowners would be forced to sell up.

Mortgage relief could cause major headaches for first-home buyers

Finder's head of consumer research, Graham Cooke, said four rate cuts would obviously provide much-needed relief for thousands of homeowners.

But he added that it's worth remembering that these are only predictions and that the future "is still uncertain".

Several rate cuts could also have a massive impact on the property market.

"While rate cuts might alleviate some financial pressure on current homeowners, they could also reignite demand in the housing market, potentially driving up property prices again," Cooke said.

“This would make it harder for first-home buyers to enter the market, even with lower borrowing costs.

"Homeowners on fixed-rate mortgages might not immediately feel the benefits of the cuts. However, those whose fixed terms are ending soon could see better refinancing options when their loans revert to variable rates, helping them avoid the sharp increases many have faced in recent years."

Get the latest Yahoo Finance news - follow us on Facebook, LinkedIn and Instagram.