Set by the Reserve Bank of Australia (RBA), the cash rate is one factor that banks take into account when setting interest rates. So, what does a cash-rate drop mean for you? Three experts answer six common questions.
1. Will a cash-rate drop lower my home loan repayments?
In May 2025, after the RBA decreased the official cash rate by 0.25 percentage points, CommBank announced a decrease in home loan variable interest rates by 0.25 per cent per annum.
“With a variable rate loan, if the bank drops your rate it will likely lower your minimum repayments but it depends on your lender,” says Darlene Neu, financial wellbeing consultant with The Money Collective, noting that some lenders reduce repayments automatically, while others don’t.
However, you may want to consider whether you can stick with your current repayment amount. “Anything you pay above the minimum repayment will assist in paying off your loan sooner,” says Sarah Vesty, a CommBank senior home lending specialist.
2. Will it boost my borrowing power?
Maybe. “Lower interest rates can mean lower minimum repayments, essentially leaving you more leftover income,” says Neu. You can easily estimate your borrowing power using CommBank’s Borrowing Power Calculator. But take a beat before you act. “Just because you can borrow more, doesn’t mean you should,” says Vesty. Consider how borrowing more will impact your household budget and how well you’ll manage everyday expenses. Not to mention that future rate rises are also a possibility.
3. Do cash-rate drops affect the economy?
Yes, says CommBank personal finance expert Jess Irvine. “Higher interest rates slow the economy—and the pace of prices growth—by reducing the amount of money households have to spend,” she says. “Interest rates have now been cut because prices in the economy—such as groceries—have stopped rising as fast as before.”
Lower interest rates also have a knock-on effect: they reduce home loan costs, leaving more money in the pockets of borrowers. That, in turn, could see house prices increase.
4. Will it lower my personal loan or credit card costs?
“Cash-rate decreases don’t usually result in a change on credit card or personal loan interest,” says Vesty, but some lenders may drop rates on those accounts. “You might want to consider consolidation or refinancing if you have enough equity. This will lower your repayments, giving you room to move.”
5. Once rates drop, will they stay low?
“The honest answer is we don’t know. It’s always best to budget for any eventuality,” says Irvine, noting that while most economists are predicting more rate cuts in 2025, only time will tell. “Inflation in Australia is now in the desired range,” says Neu. “Rates are not expected to rise throughout 2025.”
6. I’m a CommBank home loan customer, what does this mean for me?
With any decrease in interest rates, your minimum required home loan repayment amount may also decrease. If this happens, you can choose to keep paying your current amount or reduce it to the new minimum.
CommBank customers can check to see if there has been a change to their home loan variable interest rate, and find information on how to review and adjust their repayment amount, on this rates announcement page.