What To Do Now That Rates Have Dropped

3 Strategies to Make the Most of Lower Mortgage Repayments

This article has been prepared by OwnMoney and has been republished with permission. The information is of a general nature only and does not take into account your personal financial objectives, situation or needs. It does not constitute financial advice and should not be relied upon as such.

For the third time this year, the Reserve Bank of Australia has done something that'll make every homeowner do a little happy dance: They've slashed the cash rate by another 0.25% to 3.60% in August 2025. This marked the third cut in 2025, following earlier reductions in February (0.25%) and May (0.25%), bringing the total reduction to 0.75% for the year.

Many lenders have already passed these cuts on to borrowers, though some have only passed on partial reductions. If your repayments are about to drop, this isn't just a temporary win for your wallet – it's a strategic opportunity to accelerate your financial progress and build long-term wealth.

Here's how to turn a rate cut into a lasting financial advantage.

Strategy 1: Keep Your Repayments the Same – Save Thousands

The Psychology vs. The Math

When your lender reduces your minimum repayment, the natural temptation is to enjoy that extra cash flow. However, this represents one of the biggest missed opportunities in personal finance. By maintaining your current repayment level, you're essentially making voluntary principal repayments that compound over time.

Why This Strategy is So Powerful

• Accelerated Equity Building: Every extra dollar goes straight to reducing your principal balance, building equity faster.
• Dramatic Interest Savings: Less principal means less interest calculated daily.
• Shortened Loan Term: You could shave years off your mortgage.
• Psychological Momentum: Watching your balance drop faster creates positive reinforcement.

Real world examples

Loan size: $500,000 | Current repayment: $2,918 | Time saved: 23 months | Total repayments saved: $67,114

Loan size: $750,000 | Current repayment: $4,377 | Time saved: 23 months | Total repayments saved: $100,671

Loan size: $1,000,000 | Current repayment: $5,836 | Time saved: 23 months | Total repayments saved: $134,228

Interest calculated on a 5.75% rate dropping to 5.5%. Variable, P&I rate over a 360 months loan term beginning at time of reading.

When This Strategy Works Best

Early in your loan term: Maximum compound benefit over remaining years

Variable rate mortgages: Immediate implementation possible

Stable income: Confidence to maintain higher payments

Less high-interest debt: Mortgage rates are typically lower than credit cards or personal loans, meaning your total interest paid is lower

Making It Sustainable

Set up an automatic transfer to ensure the extra amount goes to your mortgage before you're tempted to spend it elsewhere. Many lenders allow you to increase your direct debit amount, making this seamless.

Strategy 2: Review Your Loan Structure – Is It Still Right for You?

Interest rate changes create the perfect opportunity to conduct a comprehensive loan health check. Your financial situation and the market have likely evolved since you first took out your mortgage.

Am I Getting the Best Rate Available?

The Loyalty Tax Reality: Banks often reserve their most competitive rates for new customers, meaning long-term customers can pay more than necessary. This "loyalty tax" can cost thousands annually.

Action Steps

• Research current market rates for your loan-to-value ratio (LVR)
• Check if you qualify for professional packages or discounted rates
• Evaluate whether recent property value increases have improved your LVR
• Chat with a mortgage broker to see if you’re in the right loan for you.

Should I Fix Part of My Loan?

While rates are falling, fixing might seem counterintuitive, but consider these scenarios:

When Fixed Rates Make Sense:

• Budget certainty: Knowing exactly what you'll pay helps with financial planning
• Partial fixing: Fix half for security and certainty while keeping some variable
• Life changes: Major expenses coming up (children, career changes) where certainty helps.

Am I Maximising My Offset Account?

An offset account is essentially a savings account that reduces the interest charged on your loan dollar-for-dollar.

Optimisation Strategies:

• Salary crediting: Have your salary paid into the offset account
• Bill timing: Time payments to maximise the average daily balance
• Emergency fund: Keep your emergency savings in the offset rather than separate accounts
• Multiple offset accounts: Having multiple functioning offset accounts gives every dollar a job and ensures more of your repayment hits your loan balance and doesn’t service interest
• Tax efficiency: Interest earned in savings accounts is taxable; offset benefits aren't.

Strategy 3: Consider Refinancing – But Do It Strategically

Refinancing has become increasingly popular however, it requires careful analysis to ensure it's beneficial.

When Refinancing Makes Strong Sense:

Significant Rate Savings:

• Your current lender hasn't passed on the full RBA cut
• If the savings in repayments will be greater than the associated refinancing costs.

Feature Upgrades

• Access to better offset account features
• More flexible redraw facilities
• Better online banking and mobile app functionality

Equity Access

• Home renovations that add value
• Investment property purchases

Refinancing Costs to Consider:

Loan Terms:

• Starting a new 30-year term can increase total interest

Immediate Costs:

• Discharge fees: $200-$1000 from your current lender
• Settlement fees: $200-$400
• Legal fees: $500-$1,500 for complex situations

Hidden Costs:

• Break fees: Can be substantial on fixed loans
• Lost features: Some loans have unique benefits you might lose

The Compound Effect of Smart Decisions

The difference between reactive and proactive mortgage management can be worth hundreds of thousands of dollars over a loan's lifetime. By treating rate cuts as opportunities rather than just temporary relief, you're positioning yourself to build wealth faster and achieve financial independence sooner.

Remember, the best mortgage strategy is one that aligns with your personal financial goals, risk tolerance, and life circumstances. While these strategies provide a framework, consider seeking personalised advice to ensure you're making the most of this rate environment.

The key takeaway: Don't let lower rates lead to financial complacency. Use them as a springboard to accelerate your financial progress and build long-term wealth.

What You Should Do Now

1. Check if your lender passed on the full rate cut
2. Decide whether to reduce repayments or keep them the same
3. Book a free home loan review to explore your options and make sure you’re not leaving money on the table. You can book here.
4. Register for OwnMoney’s upcoming finance webinars, which are free to attend. Click here to learn more.