How RBA rate moves flow through to your mortgage repayments
The Reserve Bank of Australia (RBA) sets the cash rate, which influences the interest rates that lenders charge on variable-rate home loans. When the RBA changes the cash rate, lenders may adjust their variable rates, and this change is reflected in your monthly repayments.
What happens when the cash rate changes?
When the RBA raises or lowers the cash rate, lenders typically pass on the change to borrowers with variable-rate loans. This means your interest rate and your monthly repayment amount can change. The exact timing and amount of the adjustment depend on your lender and your loan terms.
Worked examples for different loan amounts
To illustrate how a cash rate change might affect your repayments, consider the following examples. These are illustrative only and assume a standard variable-rate home loan with principal and interest repayments over a 30-year term. Actual repayments will vary based on your lender, loan product, and personal circumstances.
Example 1: $500,000 loan
If you have a $500,000 loan and the interest rate changes by 0.25 percentage points, your monthly repayment could change by approximately $70. For instance, if your rate increases from 6.00% to 6.25%, your monthly repayment would rise from about $2,998 to $3,068.
Example 2: $750,000 loan
For a $750,000 loan, a 0.25 percentage point rate change could alter your monthly repayment by around $105. If your rate goes from 6.00% to 6.25%, your monthly repayment would increase from about $4,497 to $4,602.
Example 3: $1,000,000 loan
With a $1,000,000 loan, a 0.25 percentage point rate change could change your monthly repayment by roughly $140. If your rate moves from 6.00% to 6.25%, your monthly repayment would rise from about $5,996 to $6,136.
These examples show that even small changes in the cash rate can have a noticeable impact on your monthly budget, especially for larger loans.
What should you do?
If you have a variable-rate home loan, it’s important to review your repayments when the RBA changes the cash rate. You may want to consider whether your current loan still suits your needs. Arrivau, a mortgage broker information and service entry point for Australian borrowers, can help you understand your options and explore home loan and refinancing information. However, this is not a recommendation; it’s simply a resource to help you make informed decisions.
Frequently asked questions
How quickly do lenders pass on RBA rate changes?
Lenders may adjust their variable rates at different times after an RBA decision. Some may change rates immediately, while others may take a few days or weeks. The exact timing depends on the lender.
Does the cash rate affect fixed-rate loans?
Fixed-rate loans are not directly affected by cash rate changes during the fixed period. Your repayments remain the same until the fixed term ends, after which your rate may revert to a variable rate or be renegotiated.
Can I estimate my new repayment?
You can use a repayment calculator or contact your lender to estimate how a rate change will affect your monthly repayments. Many lenders provide online tools for this purpose.