Most mortgaged homeowners won’t see repayments increase if the RBA hikes interest rates this week | Interest rates

A large majority of the 3.3 million mortgaged homeowners will not see their repayments increase should the Reserve Bank hike rates on Tuesday.

Financial markets and most economists expect the RBA will lift its cash rate target from 3.6% to 3.85%, marking the shortest and shallowest rate rise cycle in memory after inflation roared back in the second half of last year.

The central bank cut rates three times last year, but for most customers of three of the four major banks, lower variable rates did not automatically translate to lower home loan repayments.

National Australia Bank reports that eight in 10 of its variable mortgage borrowers did not reduce their payments through last year’s three rate cuts, and at the Commonwealth Bank the share was between 85% and 90%.

ANZ has not reported how many of its customers contacted the bank to lower their repayments after each cut, but it’s unlikely the share choosing to do so would be substantially different, said Sally Tindall, Canstar’s data insights director.

“Lots of people are paying extra on their home loans, which means their direct debits haven’t moved since January 2025,” Tindall said.

“What that will mean is they are in a great position to tackle a rate hike. Their monthly repayment won’t increase unless they intervene.”

Higher interest payments will still affect how quickly the home loan is paid off, she said, but “it won’t impact their day-to-day budget”.

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Westpac is the only big bank to automatically adjust a borrower’s direct debit after a rate cut, if they have asked to pay the minimum.

Macquarie takes the same approach.

Jonathan Kearns, chief economist at Challenger and a former senior RBA official, said when rates moved there was too much focus on what central bankers call the “cashflow channel”, or the impact from changes in households’ interest payments from a rate move.

“It’s something that’s very visible, but when we’ve designed our financial system with mortgage offset accounts, that actually blunts that channel,” Kearns said.

“That is good for homeowners in order to manage their cashflow and makes that aspect less impactful.”

Kearns said there was research showing that the impact on a household’s consumption from a rate move was similar whether the home loan was fixed or variable.

There were a range of other ways that the RBA’s monetary policy decisions flowed through the economy: the “wealth effect” from rising or falling asset prices (especially home values), the impact on the exchange rate, and the shifting of incentives for households and businesses to save or spend and invest.

“That spreads the impact of monetary policy changes more broadly across the economy,” Kearns said.

Those who have paid the minimum repayment through last year’s rate cuts, however, will bear the brunt of Tuesday’s anticipated rate hike, and will need to brace for potential further rises in the months ahead.

For homeowners struggling to cope with the mortgage and other rising household bills, Tindall said it was important to wargame what a further rate hike or more would mean for the family finances.

She said those worried they will struggle to make ends meet should consider seeking advice from financial counselling services and the free national debt helpline.

“The sooner you reach out to them, or indeed to the bank, the more they can help you.”