How RBA Cash Rate Decisions Affect Your Mortgage (And How to Prepare)
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The Reserve Bank of Australia meets on the first Tuesday of most months. Their cash rate decision is the single biggest external factor on your mortgage repayments. Here’s how to think about it without panicking every announcement.
What the Cash Rate Actually Is
The cash rate is what banks charge each other for overnight loans. It’s not your mortgage rate — but it’s a big input into it, alongside the bank’s funding costs from wholesale markets and deposits.
When the RBA moves the cash rate, banks generally pass through some or all of the change to variable rate mortgages, usually within a few weeks. The pass-through isn’t always 1:1, especially in cycles where banks are protecting margins.
Why the RBA Moves Rates
Two jobs: inflation around 2–3% and full employment. When inflation runs hot, they raise rates to cool spending. When the economy is weak, they cut to stimulate borrowing and investment. Everything else is commentary.
What a 0.25% Rise Costs You
On a $500,000 loan over 25 years, a 0.25% rate increase adds roughly $70–80 per month to your repayments. Doesn’t sound dramatic, but stack three hikes and you’re $200+ per month worse off. On $750k that’s closer to $300+.
How to Stress Test Before Decisions Land
- Plug your loan into a repayment calculator at current rate + 2%. Can you cover that comfortably?
- Build a buffer: Keep 3–6 months of repayments accessible in an offset or savings account.
- Don’t over-fix at the top of the cycle: Locking in a high rate just before cuts begin is a common, expensive mistake.
What Actually Helps
- Make extra repayments while rates are low — the principal you knock down doesn’t accrue interest later.
- Use an offset aggressively. Every $10,000 in your offset on a 6% loan saves $600/year.
- Review your rate every 12 months minimum. The market shifts.
💡 Quick Tip: RBA decisions rarely surprise the market — futures pricing usually predicts them within a week. If you want to anticipate moves, watch the ASX 30-Day Interbank Cash Rate Futures, not the news headlines.