Millions of households are being urged to check their mortgage repayments, with just one of the big four banks automatically reducing direct debit amounts in line with the Reserve Bank’s (RBA) rate cuts.
All big four banks passed on May’s interest rate cut to their variable home loan customers, which slashed the official cash rate by 25 basis points to 3.85 per cent
For the average owner-occupier loan of $660,000, the latest rate cut equates to $213 in monthly savings or an annual saving of more than $2500.
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But experts fear millions of borrowers will not see the savings unless they elect to change their minimum repayments.
When interest rates rise, minimum repayments on variable home loans automatically follow suit.
In the event of a drop in the official cash rate, NAB, ANZ and Commbank borrowers must manually request an adjustment to their mortgage repayments to pay the minimum.
Westpac and Macquarie Bank customers direct debit amounts are automatically reduced to match the cash rate.
“Many homeowners were counting on the RBA cut to ease the pressure, but for a lot of people, that relief won’t come unless they put in the hard yards,” comparison website Mozo’s personal finance expert Rachel Wastell said.
“Unless you take action, your lender could leave your direct debit amount exactly where it is, even if your rate has fallen.”
Even then, delays of one or two repayment cycles could apply, according to Wastell.
“Yes, paying extra will reduce your loan faster, but that only works if you can afford it.
“For many Australians, that money is needed right now for groceries, fuel or rising energy bills, and they’re missing out because they simply don’t know they need to ask.
“That lag can add up to hundreds of dollars in extra repayments…and some borrowers that could make a big difference to other outstanding bills and expenses.”
Following February’s rate cut, around 86 per cent of Commonwealth Bank customers did not reduce the direct debit on their home loan.
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Over at NAB, 95 per cent of borrowers kept their repayments unchanged.
Big bank executives have been quick to claim the data shows customers are taking the opportunity to pay off their home loans quicker.
But experts fear mortgage holders may not be aware of the stipulation.
“Banks say customers are choosing not to lower repayments, but we’re asking if they even know they need to?” Wastell questioned.
“It’s hard to call it a choice if borrowers don’t realise there’s a choice to make,” Wastell said.
“Don’t assume your bank will do it for you.”
Borrowers can view their home loan repayments online, in-app, over the phone or in person.
