On February 18, 2025, the Reserve Bank of Australia (RBA) announced a 25 basis point cut to the official cash rate, bringing it down to 4.10%. This marks the first rate cut since 2020 and signals relief for Australian borrowers as the RBA aims to ease financial pressure amid stabilizing inflation and a strong labor market.
For Reverse Mortgage borrowers, especially Seniors First customers, this is a positive development. Reverse Mortgages are a financial tool designed for homeowners aged 60 and above, allowing them to access home equity without selling. Since Reverse Mortgage interest rates often track the RBA cash rate, a reduction in rates lowers the long-term cost of borrowing.
How a cut in Reverse Mortgage interest rates helps borrowers
A common concern of seniors considering a Reverse Mortgage is the impact of compound interest over time. Unlike traditional home loans, where borrowers make regular repayments, Reverse Mortgages typically accrue interest on the outstanding balance, which is repaid when the home is sold or the borrower passes away.
A lower cash rate usually directly affects Reverse Mortgage interest rates. One of our Reverse Mortgage lenders has already passed this on and cut their rate by the full 0.25%. We expect the others to follow shortly. Â
Such reductions can lead to significant long-term savings and are good for borrowers in the following ways:
1. Slower Interest Accumulation
With lower interest rates, the balance on a Reverse Mortgage grows at a slower pace. This helps borrowers preserve more home equity for future needs or to leave as an inheritance.
Depending on the loan size and how long the borrower has the loan for, even a small rate reduction can lead to hundreds of dollars saved. If the Reverse Mortgage loan is very large and the loan term is long, it may deliver thousands in savings over time.Â
2. More Affordable Lump Sum and Income Stream Options
For seniors using a Reverse Mortgage to supplement their retirement income, lower rates mean they can access funds at a lower cost. This makes strategies like regular monthly withdrawals or lump sum advances more affordable.
3. Increased confidence to release home equity Â
Lower rates can also improve the confidence of potential new Reverse Mortgage borrowers to release equity. With lower rates, more homeowners over 55 years may feel confident to access funds for living expenses, medical bills, home renovations and more.
What This Means for Seniors First Clients
✅ More Financial Options
Lower rates mean less interest accumulating over time, helping seniors retain more net wealth in the home. If the property market is doing well and the home value is increasing, then with falling interest rates there may be a net positive effect on home equity (relative to other scenarios). Â
✅ Better Retirement Planning
With lower costs, Reverse Mortgage borrowers can stretch their funds further without worrying as much about interest eroding home equity.
✅ Greater Peace of Mind
For those using a Reverse Mortgage for debt consolidation, a lower rate ensures more manageable debt growth. Although no regular repayments are required on a Reverse Mortgage (the loan is typically repaid when the home is sold), many borrowers voluntarily service the interest to stop the loan balance growing.Â
With cuts in official interest rates, voluntary monthly interest payments on Reverse Mortgage loans may also be lower.Â
What Happens Next?
Reverse Mortgage banks and non-bank lenders are likely to adjust their variable interest rates in response to the RBA’s decision. Home loan lenders such as Commonwealth Bank, for example, has already announced a 0.25% reduction in variable mortgage rates, effective February 28, 2025.
However, the RBA has signaled caution, stating that future cuts will depend on economic conditions, including inflation trends and employment rates.
Final Thoughts
The RBA’s rate cut is good news for Australian retirees considering a Reverse Mortgage. It makes borrowing cheaper, helps preserve home equity, and provides greater financial flexibility. For Seniors First clients, this means a lower cost of living in retirement and more control over their finances.
If you’re considering a Reverse Mortgage or want to understand how this rate cut affects your existing loan, now is a great time to review your options.
Contact Seniors First today for expert guidance on navigating Reverse Mortgages in a low-rate environment!
Want to learn more about Reverse Mortgage? Download your FREE Reverse Mortgage GUIDE.
Ready to Apply? You can now check your eligibility online or call Seniors First on 1300 745 745.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Please consult a licensed financial advisor before you make any decision.
