min read
· Posted on
February 21, 2024

Interest rates May 2022: How will an interest rate rise impact my home loan?

Interest rates just rose by 0.25%. What does it mean for your mortgage?

What's the key learning?

  • The Reserve Bank of Australia (RBA) has just raised the official cash rate by 0.25% to 0.35%.

Sound the alarm. The Reserve Bank of Australia (RBA) has just raised the official cash rate by 0.25% to 0.35%.

I know what you’re thinking. How dare they?! And you’re not the only one that feels this way.  

It’s the first time the RBA has raised interest rates since November 2010! That’s the same month that Prince William announced his engagement to Kate Middleton.

Wait - what is the RBA cash rate?

Quick recap: the official cash rate is the ‘interest rate on unsecured overnight loans between banks’. Now, let’s cut the banking jargon. It basically means the amount of interest that banks pay (yep, banks borrow money too!). 

The RBA decides what the official cash rate is. And once they’ve made their decision, banks and lenders tend to change their interest rates on savings accounts and home loans (generally, in line with the official RBA cash rate).

What happens when interest rates rise?

Put simply, if the RBA increases the cash rate, then the interest rate on loans will likely increase. And your interest rate on your savings account should increase too (but often doesn’t).

You can read more about the cash rate here.

How does an interest rate rise impact my home loan?

It kinda goes without saying that, if you have a variable home loan, life’s about to get a little bit more expenny. It’s likely your lender will hike rates in line with the official cash rate adjustment. Not-so-yay… 

Like we said, whatever the RBA does…the banks will likely follow. So, if your current variable home loan interest rate is 3.5%, and the RBA increases rates by 0.15%, then your new interest rate may become 3.65%.

So, what does that actually look like? Take a look at this table, which shows the extra repayments on a home loan each month depending on your loan size and the rate hike. 

Source: Mozo

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