Mortgage holders with the big banks won't see the benefit of this week's rate cut for a few more days. (AAP: Dave Hunt)
Within minutes of the Reserve Bank of Australia announcing it would cut interest rates on Tuesday, the major banks were quick to share they were following suit.
It was the relief millions of households around the country had been waiting for, but the monthly savings on mortgage repayments wouldn't be instant.
While some lenders passed on the cut immediately, the big four banks took a more conservative approach, stipulating that the changes would come into effect within a few weeks.
So, are the banks profiting and customers paying for the delay in passing on the rate cuts? The reality is, it's not that simple.
As there have been very few announcements about changes to deposit rates from the banks to date, let's take a closer look at how the changes affect those with a mortgage.
How long does it take for banks to pass on a rate cut?
There's no hard and fast rule — in fact, banks technically don't have to pass on interest rate cuts to their customers at all.
But there is a difference between a bank announcing it will lower its interest rates, and when those lower rates come into effect.
The Commonwealth Bank, ANZ, NAB and Westpac all announced their intentions to cut variable rates for borrowers within half an hour of the RBA's decision to lower the cash rate to 4.1 per cent being announced.
(If you're wondering, Westpac was the fastest — it confirmed its changes 60 seconds after the RBA's decision was made public.)
However, the new rates being offered by the Commonwealth Bank, ANZ and NAB would only come into effect from February 28, while Westpac's offering would start from March 4.
Different lenders have different timeframes for when their lower mortgage rates take effect. ( ABC News: John Gunn )
Canstar's data insights director Sally Tindall said the delay was not unusual — and historically, banks have taken even longer to implement the lower rates, especially to mortgage borrowers.
"Over the past few years, the big banks have maintained a relatively consistent time frame for passing on RBA cash rate hikes to its variable mortgage customers," she said.
"ANZ and NAB have typically taken 10 days, while CBA has also followed this pattern — except in May 2022, when it took 17 days to pass on the increase to existing variable rate customers.
"Westpac implements variable rate changes on a Tuesday and as a result, has typically taken 14 days to to pass hikes on."
Looking further back to the last rate cutting cycle, Ms Tindall said the time between the RBA's announcement and the implementation date for the big four banks varied significantly.
Why don't the lower rates come into effect immediately?
Even though the RBA lowered the cash rate to 4.1 per cent on Tuesday, that rate didn't technically come into effect until the next day.
That's important to note, because the cash rate determines how much it costs banks to borrow money from other banks, which is factored into the interest rates the banks charge customers for home loans — so when the cash rate rises, so does the interest the banks have to pay, and so does the interest rate customers have to pay to when getting a loan.
Therefore, when the cash rate goes down, the banks have to pay less interest to borrow from other banks, and they can pass that onto their customers.
Without getting into the technicalities of a bank's operations behind the scenes, the process of those rate cuts being passed on takes time to flow through, especially for bigger lenders.
There's also a separate consideration banks have to weigh up, which is competition. If a bank didn't offer a competitive lower rate in a timely manner, its customers would leave to join one that did.
Mortgage repayments calculator
Photo shows A drone shot of a new housing estate, with houses stretching as far as the eye can see
But when interest rates have been falling for a while, banks can delay passing on rate cuts for their own bottom line.
"It's very much the case in a falling rate environment that the longer [banks] can hold their mortgage lending rates at a high level, the greater the profit they make," chief economist at Challenger, Jonathan Kearns, told The Business.
"A delay of a few weeks can be worth quite a bit to them, so we often do see in a falling rate environment that banks will delay in making the rate cut."
Mr Kearns believes the RBA's next rate cut will come after the federal election, and as a result, the banks may be more reluctant to pass on any changes.
"It may well be that after an election, if there's less focus on the banks, they could delay passing through a rate cut even more than they have this time around,"
he said.
(Keep in mind that there's more that goes into a bank's profits than simply delaying passing on rate cuts to mortgage borrowers.)
How much am I paying because of the delay?
There's no one size fits all approach, as it depends who you bank with, how big your mortgage is, and how long the term of your loan is.
But Canstar has crunched the numbers, based on the number of days between the RBA's rate cut and when the big four banks' new rates will take effect.
Here's how much potential interest a customer with a 25-year mortgage could save if the banks passed on the rate cut on the RBA's effective date of February 19.
In other words, a Westpac customer with a $500,000 loan could have saved up to $45 if the bank had passed on the rate cut on the first possible day.
However, Ms Tindall stressed that customers aren't necessarily "worse off" from the delay — as the money will still be going towards your mortgage and paying it off. (More on that shortly.)
Will the banks automatically lower my repayments?
Not necessarily — it depends who you bank with.
Even if you are charged less interest on your mortgage, it doesn't guarantee that your repayments would come down at the same time.
Rate cut may be one-off
Photo shows Michele Bullock seated at board table
In fact, Ms Tindall said that some banks will maintain the same repayment amount for customers unless they contacted their lender.
However, she noted that having to "opt in" to lower repayments didn't automatically put borrowers at a disadvantage, provided they were able to afford the higher payment.
"That's because when a borrower's interest rate drops, but their monthly mortgage repayments stay the same, the money that previously was going to the bank in extra interest charges will go towards paying off their debt faster," she said.
"If a borrower with a $600,000 debt and 25 years remaining, kept their monthly repayments at the same amount as they are paying today, and there are four standard cash rate cuts (CBA and Westpac current forecasts) that are passed on in full, this borrower could potentially save as much as $89,143 in interest over the life of their loan, helping them pay off their loan four years early."
If you're unsure whether your repayments will be lowered automatically though, Ms Tindall says it's best to contact your bank and ask.
Can I get a lower rate now or do I have to wait?
If you're looking to refinance, there's nothing stopping you from shopping around to get a better deal right now.
But don't be alarmed if you haven't heard from your bank yet about the changes either — Melbourne-based mortgage broker Ali Kawsar said it can take lenders a few days to contact their customers.
Read more on the RBA's February rate cut:
- Why the RBA poured cold water on future rate cut expectations
- Mortgage repayment calculator: How much will you save?
- Analysis: Miserly rate cut puts heat on Albanese to call election soon
"I would ask my clients to wait [for] maximum two weeks to see their rates coming down and their repayments reducing," he said.
"If it doesn't happen, we have to call the bank, and if it doesn't happen again, we have to look for other options.
"I haven't seen any wrongdoing by the lenders yet, they're all trying to reduce their rates … but I believe they will reduce it as soon as possible."
Ms Tindall also said now the first rate cut has come through, borrowers should take advantage of the current momentum to find a competitive deal.
"Yes, switching can be a bit of paperwork and there are switch fees involved. However, if you've left your mortgage by the wayside over the last few years, refinancing to one of the lowest rate lenders could potentially see you secure three or four rate cuts rather than just one," she said.
"Now is the time to start shopping around for a home loan rate starting with a '5'."