The era of really low borrowing rates is sadly over. Planning ahead is a good idea because rising interest rates are predicted to continue over the next 12 – 24 months.

There’s a good chance the loan you currently have is no longer right for you. Worse still, your interest rate may no longer be competitive.

Who controls the interest rate in Australia?

In Australia, when we talk about interest rates rising, we are referring to the official cash rate. The official cash rate affects how much banks and other lenders charge for interest on home loans.

So, when the official cash rate goes up, your home loan rate usually goes up too, particularly if you currently have a variable rate home loan.

What does a rise in interest rate mean for home loans?

Borrowers on a variable rate, expect your interest rate to go up straight away. Within a day of the RBA’s latest announcement, all four major banks notified customers that they will be raising variable rates in line with the cash rate, and other lenders will mostly followed suit.

Borrowers who locked in record-low fixed interest rates in recent years are likely to face a substantial increase in mortgage repayments when your fixed terms end and you inevitably roll onto the lender’s standard variable rate.

Higher interest rates will translate to higher monthly repayments, so some budgeting might be in order.

What happens when interest rates rise?

  • Lenders put up their home loan interest rates in accordance with the current cash rate

  • Mortgage repayments rise as the interest rate rises.