How the RBA Cash Rate Affects Your Home Loan | Mortgagefy
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Home Loan Basics 6 min read

How the RBA Cash Rate Actually Affects Your Home Loan

The connection between the cash rate and your repayments isn't as direct as the headlines suggest.

How the RBA Cash Rate Actually Affects Your Home Loan — Mortgagefy guide

When the RBA changes the cash rate, it makes the news — and Australian borrowers immediately wonder what it means for their mortgage. The answer is more nuanced than most coverage suggests.

What Is the Cash Rate?

The cash rate is the interest rate the RBA charges commercial banks on overnight loans between themselves. It's the foundation rate for the entire Australian financial system. The RBA Board reviews it monthly and announces decisions on the first Tuesday of each month.

How Cash Rate Changes Reach Your Home Loan

The cash rate doesn't directly set your home loan rate — it influences the cost at which lenders fund themselves. Lenders then decide whether and how much to pass on to borrowers.

Typical sequence after a cash rate change:

  1. RBA announces decision (1st Tuesday of the month)
  2. Major banks announce their response within days
  3. Variable rate changes take effect 2–4 weeks later
  4. Your repayment amount adjusts on the next billing cycle

Lenders Don't Always Pass On Changes in Full

This is the part that surprises many borrowers. Lenders are not legally required to pass on cash rate changes:

  • They may pass on only part of a cut
  • They may delay passing on cuts
  • They sometimes raise rates without an RBA move (citing funding costs)

Over the past decade, the average gap between cash rate changes and lender rate changes has widened. This is why reviewing your rate annually matters — even when the RBA hasn't moved.

What Happens to Fixed-Rate Loans?

Fixed-rate loans are unaffected by RBA changes during the fixed period. Your rate is locked in until the fixed term expires. After expiry, the loan reverts to the lender's standard variable rate (which has been moving with the RBA in the meantime).

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How Much Does a Rate Change Actually Cost?

A 0.25% rate change on a $600,000 loan over 25 years is roughly:

  • ~$90/month change in repayments
  • ~$1,080/year
  • ~$27,000 over the life of the loan

That's for a single 0.25% move. A series of moves compounds significantly.

Do Investors Get Treated Differently?

Yes. Lenders sometimes adjust investment loan rates separately from owner-occupied rates — particularly when APRA tightens or loosens investment lending caps. It's not unusual for investment rates to move independently of cash rate decisions.

What to Do When Rates Change

  • Check whether your lender has passed on the change in full
  • Compare your current rate to the market — if you're 0.3%+ above what new customers are getting, you're overpaying
  • If you're on fixed and approaching expiry, model what the variable rate will look like
  • Use rising-rate periods to ask your lender for a discretionary discount — they often respond when you ask

Bottom Line

The RBA cash rate sets the broad direction — but your actual repayments depend on what your specific lender does, and how active you are about reviewing your rate. Annual reviews matter regardless of which way the RBA is moving.

Get a free rate review today

We'll check whether your rate has kept up with the market — and find better options if it hasn't.

Why your rate doesn't always move when the RBA does

When the RBA cuts the cash rate, banks aren't legally required to pass it on — and they often don't, in full. In 2024–2025, several major banks held back 5–10 basis points on cuts and "passed on the full cut" only on increases. Banks point to their funding costs as justification: roughly 30% of bank funding comes from RBA-influenced sources, but the rest comes from term deposits, wholesale debt and offshore borrowing — none of which moves directly with the cash rate.

For variable-rate borrowers, this means your headline rate isn't fully tied to the RBA cycle. A bank that doesn't pass on cuts in full is effectively widening its margin at your expense. The only real defence is comparison: if your bank holds back 0.10% on a cut, a competitor that did pass on the full cut is now 0.10% cheaper. Refinancing once a year is the simplest way to keep your bank honest.

Fixed rates: the RBA's already-priced-in problem

Fixed rates don't follow the RBA cash rate at all — they follow the bond market's expectations of where the cash rate will be over the next 1–5 years. By the time the RBA actually cuts (or hikes), fixed rates have usually already moved to reflect the expectation.

That's why you'll sometimes see fixed rates fall before the RBA cuts (the market is anticipating it), and you'll sometimes see fixed rates rise even though the cash rate hasn't moved (because the market now expects future hikes). Locking in a fixed rate "before the next cut" rarely works — the cut is already in the price.

For most borrowers, the better question isn't "fix or float" but "does my variable rate need a haircut?". If you're paying more than 6.10% in 2026 conditions and you have decent equity and a clean repayment record, you're probably overpaying. Get a free rate review — most clients are surprised how much they can save without changing anything else.

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Has Your Lender Passed On Recent Changes?

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Want to model repayments yourself? Run the numbers in our Sydney home loan calculators before you apply.

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