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

The vast majority of the 3.3 million homeowners with a mortgage will not see their repayments increase if the Reserve Bank raises interest rates on Tuesday.

Financial markets and most economists expect the RBA to raise its cash rate target to 3.85% from 3.6%; This marks the shortest and shallowest rate hike cycle in memory after inflation started to rise again in the second half of last year.

The central bank cut interest rates three times last year, but for most customers of three of the big four banks, lower variable interest rates did not automatically translate into lower mortgage repayments.

National Australia Bank reported eight in 10 variable mortgage borrowers did not reduce their payments due to three rate cuts last year, and at the Commonwealth Bank the share was between 85% and 90%.

ANZ did not report how many of its customers contacted the bank to reduce their repayments after each outage, but shares choosing to do so were unlikely to be significantly different, said Sally Tindall, Canstar’s director of data insights.

“Many people are paying extra on their home loans, meaning their direct debt has remained unchanged since January 2025,” Tindall said.

“This will mean they are very well positioned to resist a rate hike. Their monthly repayments will not increase unless they intervene.”

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

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Westpac is the only major bank to automatically set up a borrower’s direct debit after interest reduction if they request the minimum payment.

Macquarie takes the same approach.

Jonathan Kearns, Challenger’s chief economist and a former RBA official, said there was too much focus on what central bankers call the “cash flow channel” when rates change, or the impact of changes in a rate move on households’ interest payments.

“It’s a very visible thing, but when we design our financial system with mortgage offset accounts, it actually blunts that channel,” Kearns said.

“This is a good thing for homeowners in terms of managing their cash flow, and it makes that aspect less impactful.”

Kearns said there was research showing that the impact of changes in interest rates on household consumption was similar whether the mortgage loan was fixed or variable.

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

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

However, those who have paid the minimum repayment through last year’s interest rate cuts will bear the brunt of the interest rate increase expected on Tuesday and will need to prepare for possible additional increases in the coming months.

For homeowners struggling to cope with mortgages and other rising household bills, Tindall said it’s important to see what more interest rate increases or more could mean for family finances.

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

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