How RBA rate moves affect your mortgage
The Reserve Bank of Australia (RBA) sets the cash rate, which influences the interest rates that lenders charge on variable home loans. When the RBA changes the cash rate, lenders may adjust their variable rates, and this directly changes the monthly repayment amount on your mortgage.
What happens when the cash rate changes
If the RBA lowers the cash rate, lenders may reduce their variable interest rates, which can lower your monthly repayments. Conversely, if the RBA raises the cash rate, lenders may increase their rates, leading to higher repayments. The exact change depends on how much of the rate cut or hike your lender passes on to you.
Example calculations for different loan amounts
To illustrate the impact, consider a variable home loan with a 30-year term. The table below shows how a 0.25 percentage point change in the interest rate affects monthly repayments for different loan amounts.
| Loan amount | Interest rate | Monthly repayment (before change) | Monthly repayment (after 0.25% increase) | Change in monthly repayment |
|---|---|---|---|---|
| $500,000 | 6.00% | $2,998 | $3,068 | +$70 |
| $750,000 | 6.00% | $4,497 | $4,602 | +$105 |
| $1,000,000 | 6.00% | $5,996 | $6,136 | +$140 |
These figures are illustrative and assume the full rate change is passed on. Actual repayments depend on your specific loan terms, lender, and any fees.
What to consider as a borrower
If you have a variable rate loan, it's important to review your budget and consider how a rate change might affect your cash flow. You may also want to compare offers from different lenders to ensure you're getting a competitive rate. For personalised advice, you can consult a mortgage broker who can help you navigate the options.
Frequently asked questions
How quickly do RBA rate changes affect my repayments?
The timing depends on your lender. Some lenders adjust variable rates within days of an RBA decision, while others may take longer. Check with your lender for their specific process.
Does a rate change affect fixed-rate loans?
No, fixed-rate loans have a set interest rate for a fixed period, so RBA changes do not affect your repayments until the fixed period ends.
Can I reduce the impact of a rate rise?
You may be able to refinance to a lower rate, make extra repayments, or negotiate with your lender. A mortgage broker can help you explore these options.