The RBA Cash Rate and Your Home Loan
The Reserve Bank of Australia (RBA) sets the official cash rate, which influences the interest rates that banks and lenders charge on home loans. When the RBA changes the cash rate, most variable-rate mortgages adjust accordingly, which directly affects your monthly repayments.
This article explains how cash rate movements flow through to your mortgage and provides worked examples for different loan amounts.
How Changes Flow Through to Repayments
A change in the RBA cash rate typically leads to a corresponding change in the variable interest rate on most home loans. Your lender will usually pass on the full change, but the timing can vary. Fixed-rate loans are not affected until the fixed period ends.
The size of your monthly repayment depends on:
- Your loan amount
- Your interest rate
- Your loan term
- Whether your rate is variable or fixed
When the cash rate rises, your interest rate increases, and your repayment goes up. When the cash rate falls, your repayment can go down.
Worked Examples for Different Loan Amounts
To illustrate the impact, consider a home loan with a 25-year term and different loan amounts, assuming the interest rate changes by 0.25 percentage points (25 basis points). The following examples show the estimated change in monthly repayments.
Example 1: $500,000 Loan
For a loan of $500,000, a 0.25 percentage point increase in the interest rate would increase the monthly repayment by approximately $70.
Example 2: $750,000 Loan
For a loan of $750,000, the same 0.25 percentage point increase would increase the monthly repayment by approximately $105.
Example 3: $1,000,000 Loan
For a loan of $1,000,000, a 0.25 percentage point increase would increase the monthly repayment by approximately $140.
These figures are indicative estimates and will vary based on your exact interest rate, loan term, and lender.
What to Consider When Rates Change
- Check your loan type: If you have a variable-rate loan, your repayments will adjust in line with the RBA rate. Fixed-rate loans provide certainty, but you may face higher costs once the fixed term ends.
- Review your budget: Prepare for potential repayment changes by reviewing your household budget.
- Seek professional advice: A mortgage broker can help you understand your options and find a loan that suits your circumstances.
Frequently Asked Questions
How often does the RBA change the cash rate? The RBA meets regularly throughout the year and can adjust the cash rate at any of its meetings. The frequency and size of changes depend on economic conditions.
Do all lenders pass on the full rate change? Most lenders adjust their variable rates in line with the RBA, but they may not pass on the full change immediately. Some may offer partial or delayed adjustments.
Can I switch to a fixed-rate loan to avoid changes? Yes, you can negotiate a fixed-rate loan with your lender, but the fixed rate may differ from the current variable rate, and there may be fees involved.
How can I calculate my own repayment change? You can use an online repayment calculator or contact your lender for a personalised estimate. The examples above provide a rough guide for common loan amounts.
For more detailed guidance on mortgage trends and strategies, see our article on how AFG tracks Australia’s shifting mortgage market and for first-home buyer insights, read about the $50,000 trap facing borrowers.