How the RBA cash rate affects your mortgage, and what to do about it
Every time the Reserve Bank of Australia meets, millions of Australian mortgage holders brace themselves. There's a two-day meeting, a press conference, and then, depending on the outcome, a wave of emails from banks announcing that repayments are going up.
But most borrowers have only a loose understanding of what actually happened, why it happened, and most importantly, what they should do about it. This article explains all three.
What the RBA cash rate actually is
The cash rate is the interest rate at which banks lend money to each other overnight. It's the RBA's primary tool for steering the economy, and it has nothing directly to do with your mortgage, at least not in a technical sense.
Here's the chain of logic. Banks need to balance their books daily. When they're short of funds, they borrow from other banks overnight at the cash rate. When the cash rate is high, that overnight borrowing is expensive. When it's cheap, borrowing costs fall. Because banks fund their lending at the cash rate (among other sources), the cost of providing home loans moves broadly in line with it.
The RBA's mandate is to keep inflation between 2% and 3% while maintaining full employment. When inflation runs too hot, the RBA raises the cash rate to make borrowing more expensive and slow spending. When the economy weakens or inflation falls below target, it cuts the cash rate to stimulate activity.
It's a blunt instrument. The RBA can't target your electricity bill or your grocery costs directly. What it can do is raise or lower the cost of credit across the entire economy and hope the effect filters through.
Your home loan rate is not the cash rate
This distinction matters more than most people realise.
Your home loan rate is set by your lender, not by the RBA. The cash rate influences it, often directly and quickly, but they are not the same thing. Your rate is also shaped by:
- The lender's own funding costs and profit margins
- Competitive pressure from other lenders in the market
- Your loan-to-value ratio and credit profile
- Whether you're an owner-occupier or investor
- Whether you're paying P&I or interest-only
- Whether you're a new customer or an existing one
This last point is worth dwelling on. Banks routinely offer sharper rates to new borrowers than to existing customers. When the RBA cuts, a bank might pass on 0.20% of a 0.25% cut to existing customers, but offer new borrowers 0.25% off right away. The cumulative effect, over multiple rate cycles, is that loyal borrowers can end up paying substantially more than someone who recently refinanced.
Lenders are also legally required to give you 20 days notice before increasing your rate. They have no such obligation when passing on a cut, and they are historically much faster to move on hikes than cuts. When the RBA raises the cash rate, banks increase their variable home loan rates, usually by the same amount and often within days. When the RBA cuts the cash rate, banks reduce their rates, though historically they have been slower to pass on cuts in full.
Where we are in April 2026
Australia is currently in the middle of a rate cycle reversal that few people saw coming at the start of 2025.
Here's the recent history:
| Date | Move | Cash rate |
|---|---|---|
| Feb 2025 | Cut 0.25% | 4.10% → 3.85% |
| May 2025 | Cut 0.25% | 3.85% → 3.60% |
| Aug 2025 | Cut 0.25% | 3.60% → 3.35% |
| Feb 2026 | Hike 0.25% | 3.60% → 3.85% |
| Mar 2026 | Hike 0.25% | 3.85% → 4.10% |
For most of 2025, the story was rate relief. Three consecutive cuts from February through August delivered genuine breathing room for variable borrowers. Many Australians had been expecting that to continue into 2026.
It didn't. While inflation had fallen substantially since its peak in 2022, it picked up materially in the second half of 2025. Sharply higher fuel prices driven by conflict in the Middle East, combined with stronger-than-expected economic growth and a tighter labour market, pushed the RBA to act, twice in quick succession.
On a $750,000 home loan, a 0.25% rate rise adds roughly $115 to $120 per month to repayments. Combined with February's hike, that's over $230 per month added in just two months.
The next RBA decision is scheduled for 5 May 2026. All four major banks (CBA, NAB, Westpac and ANZ) are forecasting at least one further hike at that meeting. Westpac's economists are forecasting a more aggressive path, with the cash rate potentially reaching 4.85% by August if fuel and inflation pressures persist.
A quick word on historical context
When repayments rise, it's natural to feel like the sky is falling. A bit of historical perspective helps.
The long-term average cash rate since the RBA adopted inflation targeting in the early 1990s is approximately 4.5%. In the late 1980s, home loan rates exceeded 17%, and through most of the 1990s and 2000s, rates between 6% and 8% were considered normal. The ultra-low rates of 2020 to 2021 were an extraordinary anomaly, not the baseline.
This doesn't make current repayments less painful, particularly for borrowers who entered the market at those ultra-low rates and structured their finances around them. But it does mean that rates in the mid-5% to 6% range are not historically unusual. They are, by any long-term measure, relatively moderate.
The more useful frame isn't "how high are rates?" but "is my rate competitive given where the market currently sits?" A borrower on 6.20% when competitive rates are available at 5.40% is overpaying by 0.80%, and that gap doesn't close on its own when the RBA holds or even cuts. It closes when you act.
What you can't control, and what you can
Here's the honest reality: you cannot control what the RBA does. You can't predict it reliably, and neither can the banks, the economists, or the Governor herself. Australians should understand that the RBA's outlook is inherently uncertain and data dependent.
What you can control is how your loan is positioned relative to the market, and how prepared you are for repayments to change in either direction.
Five things worth doing now:
1. Know exactly what rate you're on. This sounds obvious, but a surprising number of borrowers couldn't tell you their current rate without looking it up. Log into your banking app, find your home loan, and write down the current interest rate. That's your starting point for everything else.
2. Compare it against the market. The cash rate sets the floor of the rate environment, but your rate is one lender's offer in a competitive market. Competitive variable rates for owner-occupiers currently start from around 5.08% to 5.40% with smaller and online lenders. If your rate starts with a 6, that's worth investigating regardless of what the RBA does next.
3. Call your lender before shopping around. If your rate is uncompetitive, your first call should be to your existing lender. Banks don't automatically give existing customers their best rate, but they often will if you ask. Say clearly that you've reviewed the market and your rate isn't competitive, and ask for a rate review. This costs nothing and takes 15 minutes. Some borrowers get 0.25% to 0.50% off on that call alone.
4. Review the fixed vs variable question. With two consecutive hikes behind us and further increases likely in May, the question of whether to fix any portion of your loan deserves fresh attention. The considerations (rate trajectory, your budget flexibility, break costs) are covered in detail in our earlier article on when to fix your rate. The key point: if you're going to consider fixing, do it before rates move again, not after.
5. Build a repayment buffer. Every mortgage holder should know the answer to this question: if my rate rises another 1%, can I still make my repayments? If the answer is yes comfortably, you have genuine financial flexibility. If the answer is "probably, just about," consider building a buffer now, either in an offset account or by voluntarily paying slightly above your minimum repayment. The time to build resilience is before rates move, not during.
The thing most borrowers miss
Most of the focus after an RBA announcement lands on the cash rate change itself. The 0.25% number, the press conference, the headlines.
What gets far less attention is the gap that accumulates between what borrowers are paying and what the market is currently offering. That gap doesn't appear on an RBA press release. It doesn't show up in a notification from your bank. It only becomes visible when you look for it.
That gap, between your rate and a genuinely competitive rate, is often where the real money is. A borrower sitting on 6.20% when competitive alternatives exist at 5.40% is paying $5,600 per year more in interest on a $700,000 loan than they need to. No RBA rate cut is going to fix that. Only reviewing and acting on your own loan will.
The RBA meets eight times a year. How often do you review your home loan?