How Australia’s Interest Rate Cut Affects Your Borrowing Power

The Reserve Bank of Australia (RBA) recently lowered interest rates by 0.25%, bringing them down to 4.10%. This means borrowing money—such as getting a home loan—could become cheaper. But how does this actually impact you if you’re looking to buy a house or take out a loan? Let’s break it down.

What Happens When Interest Rates Drop?

When interest rates go down, banks reduce the amount of interest you have to pay on a loan. This makes it easier for people to borrow more money because their monthly repayments are lower.

For example, let’s say a couple earns $150,000 a year and has no kids. Before the rate cut, they could borrow around $770,000 for a home. But after the rate cut, their borrowing power might increase by about $17,500.

On the flip side, when interest rates go up, borrowing power shrinks because repayments become more expensive.

How Does This Affect the Housing Market?

When people can borrow more, demand for houses goes up because more buyers enter the market. This often leads to higher home prices.

In February 2025, right after the rate cut, Australian home prices rose by 0.40%, reaching their highest level ever. Over the past year, prices have climbed by almost 4%.

Is This a Good Thing?

• Good for buyers? Yes, because you can borrow more.
• Good for homeowners? Yes, because house values go up.
• Bad for new buyers? Possibly, because as prices rise, homes may become harder to afford.

Final Thoughts

Lower interest rates can help you borrow more and pay less in interest, but they also make homes more expensive in the long run. If you're thinking about getting a loan, it’s a good idea to speak with a financial expert to see how this affects you.