Does a rate rise change my repayment straight away?

On a variable loan, your lender usually updates your repayment within a month or two of a rate change. On a fixed loan, your repayment stays the same until your fixed period ends.

Will my repayment go down if rates fall?

On a variable loan it often can, though the timing and amount depend on your lender. Some people keep paying the same amount so more goes towards the balance.

Should I fix my rate when rates are moving?

It depends on your goals, your budget and how much certainty you want. There is no single right answer, so it helps to compare your options before deciding.

How Interest Rate Changes Affect Your Home Loan Repayments

When the news talks about rates going up or down, it can feel a bit abstract. Here is what an interest rate change on a home loan actually does to the number you pay each month.

What an interest rate actually is

The interest rate is the cost of borrowing money. It is charged on the amount you still owe, not the amount you have already paid off.

So a rate change does not touch your whole loan in one go. It changes the slice of interest added each month. A small move in the rate can still add up over a year, because your loan balance is large.

If you have a variable rate, your repayment can move when rates move. If you have a fixed rate, your repayment stays the same until the fixed period ends. You can read more about how these loans work on our home loans page.

How a small rate rise changes the number

Let us put real figures on it. A rate change of 0.25% sounds tiny. On a big loan, it is easier to see why it matters.

The opposite is also true. If rates fall, your repayment can drop, or more of each payment can go towards the balance.

Why the same rate move feels different for everyone

Two people can hear the same rate change and feel it very differently. A bigger loan means a bigger dollar change for the same percentage move.

The length of your loan matters too. So does whether you are paying both principal and interest, or interest only. And if you have an offset account, the savings sitting in it can soften the blow.

This is why it helps to look at your own numbers, not the headline. The same 0.25% feels small on a $200,000 loan and larger on a $700,000 one.

What to do when rates move

A rate change is a good prompt to check your loan, not a reason to panic. Start by working out the new repayment using your real balance and rate.

Then ask whether your current loan still suits you. You might compare what other lenders are offering and look at whether refinancing could lower your repayment or shorten your loan. First home buyers can find more help on our first home buyers page, and property investors on our investment loans page.

If you want a hand running your own numbers, you can request a callback and we will walk through your options with you. No pressure, just plain advice for your situation.

This article is general information only and does not take your personal circumstances into account. Speak to a licensed mortgage broker for advice specific to you.