A rate hike occurs when the Reserve Bank of Australia (RBA) increases the official cash rate, usually to help control inflation. While it’s a common economic tool, it can have a direct impact on borrowers and those planning to enter the property market.
Here’s how a rate rise could affect you.
Higher Mortgage Repayments
For borrowers on variable rates, a rate hike often leads to higher monthly repayments once lenders pass on the increase. Even small rate rises can add up over time, especially for larger loan balances.
Fixed-rate borrowers won’t see immediate changes, but they may feel the impact when their fixed term ends and they roll onto higher variable rates.
Here’s what it looks like:
Reduced Borrowing Power
As interest rates rise, banks reassess how much they’re willing to lend. This can reduce borrowing capacity, meaning buyers may need to adjust their price range or increase their deposit.
For those already pre-approved, it’s important to understand how a rate hike might affect approval amounts or loan conditions.
Flow-On Effects for the Property Market
Rate hikes can cool demand in the property market by making borrowing more expensive. In some areas, this may slow price growth, while in others — particularly high-demand or supply-constrained markets — the impact may be more limited.
For investors, higher rates may tighten cash flow, making loan structure, offset accounts, and interest-only strategies more important than ever.
Strategies to Manage a Rate Rise
A rate hike doesn’t mean you’re out of options. Depending on your circumstances, strategies may include:
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Reviewing your current interest rate
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Refinancing to a more competitive loan
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Using an offset account more effectively
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Fixing part or all of your loan for certainty
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Restructuring debt to improve cash flow
The key is understanding what’s available and acting early.
Need help navigating higher rates?
A mortgage broker can help you review your loan, compare options across multiple lenders, and build a strategy that suits your financial goals — even in a rising rate environment. If you’re struggling to repay your home loan, reach out to us today, don’t suffer in silence! Book a chat here.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced, or republished without prior written consent. Content developed in partnership with IFPA.
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