With economic conditions around the World deteriorating, it is likely there are more cuts to come as the RBA pulls out all the stops to try to avoid Australia dipping into recession. A big ask, but not impossible.
While that is good news for borrowers, experts who research the lenders say that even bigger savings can be made by shopping around with other lenders.
While going to a mortgage broker is convenient, be careful because they do not always offer the best deals.
Consumer watchdog Choice recently shopped around on behalf of three borrowers. It found the best deals came through switching to mortgages offered by credit unions and the online lending channels of the big banks. However, these deals were not always offered through mortgage brokers. Choice found credit unions and building societies have, on average, "lower variable interest rates and lower fees than the Big Four banks".
Frank Lopez, an analyst with researcher Cannex, says those who took out fixed-rate mortgages before the middle of the year when the expectation was for rate increases would be kicking themselves now rates are falling. "Borrowers on fixed rates likely face huge break costs if they want to get out to take advantage of further possible rate cuts," he says.
They need to carefully consider whether the savings in interest rates will outweigh the break costs.
With interest rates likely to fall further, choosing variable rates looks like the better option.
MORE FOR THE MONEY
Markets are pricing in rate cuts that will take the cash rate to 3.75 per cent during the next six months.
The Reserve Bank has indicated it is prepared to cut even further to head off the worst of the global financial crisis.
AMP Capital Investor's chief economist Shane Oliver says the cash rate will most probably reach a low of 3.75 per cent by September next year but the Reserve Bank may have to cut even more.
"Unfortunately, it now looks like we are on the way to a mild recession," Oliver says.
"The threat to growth domestically is far more significant than was the case when interest rates were lowered to 4.25 per cent in 2001, which was the last low for interest rates."
CommSec chief equities economist Craig James is expecting the cash rate to be cut by another 0.25 percentage point next month. The Reserve Bank may then "sit back and see what the impact is on the economy".
He says the Reserve Bank may have to reduce rates again next year and the cash rate may have to be cut to 4.5 per cent.
"The speed of developments has taken everybody by surprise," James says.
"Midyear the Reserve Bank still thought that the next move in rates would be up rather than down." However, it is possible that things could turn up just as quickly as they have turned down. But don't bet your mortgage on it.
