RBA Rate Cut: How should you structure your debt in 2025?

Overview:

With the Reserve Bank of Australia (RBA) cutting interest rates by 0.25 percentage points to 4.1% in February 2025, Australians with business or personal loans should reassess their debt structuring options in light of changing market conditions. The RBA's post-meeting statement acknowledged that inflation has eased but signalled a cautious approach moving forward. With this in mind, borrowers face an ongoing decision: Should they lock in a fixed interest rate or stick with a variable rate in the current economic climate?

Interest Rate Trends and Market Response

Interest rates have been a focal point for borrowers over the past few years, with the RBA taking a measured approach to monetary policy. Now that a rate cut has occurred, market activity has already adjusted to reflect the new cash rate, with lenders reassessing their fixed and variable rate offerings.

Interestingly, we are seeing cases where some two- and three-year fixed interest rates on business and home loans are comparable to, or even lower than, the current variable rate. For instance, some major banks now offer fixed rates that are marginally below their standard variable rates, providing an opportunity for borrowers to secure repayment certainty.

The Pros and Cons of Locking in a Fixed Rate

Given the current market environment, many borrowers are considering whether locking in a fixed rate is a prudent move.

A key advantage of fixing a portion or all of your debt is the predictability of repayments over a set period. For families managing household budgets, locking in a rate ensures stability in loan repayments and eliminates the worry of potential rate fluctuations. Likewise, for business owners, predictable loan costs can improve cash flow planning and financial stability.

However, locking in a rate does come with trade-offs. If variable rates were to decrease further, borrowers on fixed rates could miss out on savings. While the RBA has reduced rates, the potential for further cuts remains uncertain, making this a key factor to consider.

Deal Your Own Cards

Perks Banking & Finance Director, Bruce Debenham, advises that while brokers and financial professionals can provide guidance, the ultimate decision must align with an individual’s or business’ specific financial situation.

“Rather than trying to predict market movements, borrowers should make decisions based on their current financial needs and risk tolerance,” Bruce explains. “The most important question is whether you are comfortable with your repayment obligations over the period you lock in.”

For business owners, structuring debt strategically is critical. If your business is expected to carry significant debt over the next few years, fixing all or part of the loan may be a sound strategy. Conversely, if you anticipate reducing your loan balance over time, maintaining a portion on a variable rate may provide more flexibility.

What You Can Do Now

With the latest RBA rate cut bringing the cash rate to 4.1%, now is an opportune time to review your debt structure. Whether opting for fixed, variable, or a combination of both, working closely with your broker and financial advisers will ensure your loan strategy aligns with your financial goals.

If you’re uncertain about which path is right for you, now is the time to seek professional advice to make an informed decision about your debt structure in 2025.

Get in touch with Bruce, Laura or Steve in Perks Finance now to find out about how we can help you secure a better deal for your mortgage.

Bruce Debenham, Director, Finance – 08 8273 9223

Laura Tredrea, Residential Lending,  Perks Finance – 08 8273 9341

Steve Martin, Commercial & Business Lending, Perks Finance – 08 8273 9241