What Are Your Options When Interest Rates Keep Rising?

The Reserve Bank has lifted the cash rate to 4.85%, the highest level since late 2008. If that headline made your stomach drop, take a breath. You can't control the cash rate, but you can control how well you understand your loan, your budget and your choices.

This guide walks you through the steps in a sensible order, in plain language. Nothing here needs a finance background, and you don't have to do it all in one afternoon.

What Does a Rate Rise Mean for Your Repayments?

If you have a variable rate loan, your lender will usually pass the rise on and your repayments will go up. If you are on a fixed rate, you usually see a change when your fixed term ends or when you refinance.

The RBA has lifted rates five times this year, so you may already have felt a few increases. Lenders decide when to apply a change, so the start date for your new repayment can differ from a friend's loan at another bank. Your lender must tell you before the new amount starts, so check your emails and statements. If your fixed rate is about to end, our page on fixed rate expiry explains what usually happens next.

Know Your Numbers Before You Make a Move

Before you change anything, write down five things: your current rate, your loan balance, how many years are left, your estimated property value and your new repayment amount with its start date. If you are on a fixed rate, add the date it ends.

These figures show you how much room you have to move. Your balance compared to your property value, known as the loan-to-value ratio or LVR, affects the rates and options lenders will offer you. The Moneysmart website has mortgage calculators that let you test different repayments in a few minutes. Our Loan Health Check can also help you see where your loan stands today.

Ask Your Lender for a Rate Review

The quickest first step is to call your lender and ask whether they can lower your rate. Lenders often give their best pricing to new customers, so a long-standing customer may be paying more than someone who joined last month.

Before you ring, look up what new customers are being offered. Then ask politely and directly whether your rate can be reduced to match. The trade-off is that a lender may say no, or offer only a small cut. A mortgage broker can compare options across a panel of lenders, which gives you a wider view than one phone call. You can read more about getting a lower interest rate on our website.

Is Refinancing Worth It? Check the Full Cost

Refinancing means moving your loan to a new lender, or a new loan with your current one. It can cut your repayments, but only if the savings outweigh the costs of switching.

Look at the whole picture rather than the headline rate. Compare fees, features and the total cost over time. Costs can include discharge fees, application fees, valuation fees and, on a fixed loan, break costs. If you borrow a high share of your property's value, lenders mortgage insurance may also apply.

You will also be assessed again. Lenders must test that you can afford repayments at a rate at least 3 percentage points above the loan rate. Rates are higher now, so that test is tougher than it was when you first borrowed.

There is one more catch. If you restart a 30-year term, your repayments may fall, but you could pay more interest over the life of the loan. Asking for a shorter remaining term, or keeping your repayments the same after refinancing, can reduce that risk. Our home loan refinancing page covers the process step by step.

How an Equity Release Into an Offset Account Works

If you have built up equity in your home, you may be able to borrow a bit more when you refinance and hold that money in an offset account as a cash buffer. The buffer can cover repayments or emergencies if your income dips.

An offset account is a transaction account linked to your loan. The balance in it is subtracted from your loan when interest is calculated. With a 100% offset, each dollar in the account cancels interest on a dollar of debt at the same rate.

Consider a household with a $600,000 loan that increases it to $650,000 and keeps the extra $50,000 in a 100% offset account. At an illustrative rate of 6.75% over 30 years, the minimum repayment rises from about $3,892 to about $4,216 a month, an increase of roughly $324. While the $50,000 sits in the offset, it cancels about $281 a month in interest, so more of each repayment goes towards the loan balance. As the household spends the buffer, that interest saving shrinks.

The trade-off is clear. You get more cash in reserve, but your minimum repayment is higher and your total debt is larger. It is a safety net, not extra spending money, and it does nothing for repayments that are already unaffordable.

A few checks matter before you try this:

• You need to pass the lender's assessment on the higher loan amount, and lenders may ask what the funds are for.
• Fixed rate portions often have limited or no offset access, so the offset is usually linked to a variable portion.
• Falling property values could reduce the equity available to you.
• Tax deductibility depends on how borrowed money is used. If the property is, or may become, an investment, speak with your accountant before you borrow extra.

This is usually easier to arrange while your finances are steady, rather than after income drops or repayments are missed. Our equity release loans page explains the options in more detail.

Fixed or Variable: Which Suits You Right Now?

A fixed rate gives you repayment certainty for a set period, while a variable rate gives you flexibility. Neither is right for everyone, and the choice depends on how much certainty your budget needs.

Fixed loans often limit extra repayments and can charge break costs if you leave early. Variable loans move with the market but usually let you make extra repayments and use an offset account. Some households split the loan, with part fixed and part variable, to get a mix of both.

Nobody can reliably predict where rates go next. The RBA's next cash rate decision is scheduled for 8 December, and it has said incoming data will guide its decisions. Choose the structure you can live with in either direction.

Tighten the Household Budget Without Guesswork

The quickest budget wins come from the bills you can change this month: subscriptions, insurance, energy and phone plans. Even small cuts add up when they repeat every month.

Pay attention to high-interest debts too. Credit cards and buy now, pay later accounts usually cost more than a home loan, so clearing them first can ease your monthly pressure. Some people roll these debts into their mortgage through debt consolidation. It can lower your monthly outgoings, but you may pay more interest overall because the debt is spread over a much longer term. Weigh that carefully before you choose it.

What If Repayments Are Becoming Hard to Meet?

Contact your lender as early as you can, ideally before you miss a payment. All lenders have hardship teams, and asking for help does not cost you anything.

Tell them what has changed, how long you think it will last and what you can afford to pay. Your lender must write to you within 21 days with the outcome of your hardship request. Options can include a payment plan or altered loan repayments, and an arrangement may be temporary.

Financial counsellors can also help you talk through your options. The National Debt Helpline is on 1800 007 007. It also pays to plan for the unexpected, like a job loss or a drop in hours, because losing income can hit a budget harder than a rate rise.

Small steps taken early give you more choices later. Call one of our team or book an appointment at a time that works for you through our booking page, and bring a recent loan statement so we can review your options together.

This article is general information only and does not take your personal circumstances into account. All lending is subject to lender criteria, and you should speak with your accountant about any tax questions.

Frequently Asked Questions