How Interest Rate Changes Affect Your Home Loan

The short answer

When the Reserve Bank changes the cash rate, most variable home loan rates follow. Your repayments go up or down, usually within a few weeks.

You can’t control the rate cycle, but you can control how you respond to it, and you don’t have to wait for your bank to act.

The cash rate and how it flows through

The Reserve Bank of Australia sets the cash rate, and its board meets eight times a year to decide whether to change it. The cash rate influences what banks pay to borrow money, which in turn affects the rates they charge you.

Variable rates usually follow the cash rate, but each lender decides how much to pass on and when. Lenders can also move their rates independently, for example when their own funding costs change.

Fixed rates

If your loan is fixed, your rate and repayments don’t change during the fixed term, whatever the Reserve Bank does.

New fixed rates do move, though. Lenders price them based on where they expect rates to go, so fixed rates often shift before the cash rate actually changes.

When your repayments change

After a rate change, your lender will notify you of your new rate and repayment. Repayments usually adjust within a few weeks, often from your next billing cycle.

On a rate cut, some lenders don’t lower your repayments automatically. Your rate drops, but your repayment stays the same unless you ask, which means you pay your loan off a little faster.

Rule of thumb

On a $600,000 loan over 30 years, starting at 6.00% p.a. (about $3,600 a month):

Rate change	New rate	Monthly repayment	Change
+0.25%	6.25%	about $3,690	about +$100
+0.50%	6.50%	about $3,790	about +$195
+1.00%	7.00%	about $3,990	about +$395

As a rough guide, every 0.25% change moves repayments by about $100 a month for every $600,000 you owe.

When rates fall, and when they rise

When rates fall: consider keeping your repayments the same. The extra goes straight to your principal, so you pay off your loan faster and save interest.

When rates rise:

• Use your buffer: savings in your offset reduce the interest you pay and cushion higher repayments.
• Review your budget: look for legitimate ways to trim spending.
• Talk to us early: if repayments are getting tight, we can review your options before it becomes a problem. Lenders also have hardship options if you need them.

Don’t wait for your bank

Lenders often offer their sharpest rates to new customers, not existing ones. That’s why we review your rate every six months and negotiate with your lender, or look elsewhere if there’s a better option.

When rates rise, we may review your loan sooner. We’re always keeping an eye out, and you’re welcome to reach out to us any time you need.

Worried about rate changes?

With access to over 40 lenders, our team of lending specialists keeps an eye on your rate so you don’t have to. Reach out any time for a review.

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General information only. This article does not consider your objectives, financial situation or needs and is not credit, financial or tax advice. Examples are illustrative and rates are hypothetical. Seek advice from a licensed credit adviser before acting. Insight Property Finance.