Understanding Interest Rate Changes

The Reserve Bank of Australia (RBA) cash rate influences home loan rates across the country.

How Interest Rates Work

The RBA sets the cash rate based on economic conditions. Banks then adjust their variable rates accordingly.

Impact on Repayments

Even small changes significantly affect repayments: Example ($500,000 loan, 30 years):

• At 6.0%: $2,998/month
• At 6.25% (+0.25%): $3,078/month (+$80)
• At 7.0% (+1.0%): $3,327/month (+$329)

Protection Strategies

Build a Buffer: Make repayments as if rates were 2-3% higher Fix Your Rate: Lock in for 1-5 years Split Your Loan: Balanced protection and flexibility Use Offset Account: Reduce effective interest charges

What to Do When Rates Change

When rates rise:

Review budget

Consider refinancing

Increase repayments if possible

Avoid panic decisions

When rates fall:

Maintain higher repayments

Build offset savings

Consider refinancing if rate does not decrease

Monitor RBA announcements (first Tuesday of most months), inflation data, employment figures, and housing trends.