What the Latest Interest Rate Rise Really Means for Aussie Mortgage Holders
Yesterday, the Reserve Bank of Australia (RBA) made yet another move in its ongoing battle with inflation – lifting the official cash rate by 25 basis points, bringing it to 3.85%.
Now, if you’re like most of the clients I’ve spoken with this morning, you’re not necessarily glued to economic reports or inflation forecasts. You’re busy running your household, managing a business, or just trying to keep on top of the weekly grocery bill. And suddenly, this “small” rate rise translates into a few hundred more dollars a month on your mortgage.
I completely understand. That’s not just a line on a bank statement – it’s real money. And in this article, I want to explain, in plain English, why this increase happened, what it means for you, and most importantly, what you can do right now to reduce the stress it causes.
Why Did the RBA Raise Interest Rates Again?
Let’s start with the basics.
The Reserve Bank uses the official cash rate as a lever to control inflation. Inflation, in simple terms, is the rise in the prices of goods and services. You’ve probably noticed this in your weekly shop – milk, bread, and fuel are all noticeably more expensive than they were a year ago.
The RBA’s target for inflation is 2–3%, but as of the last Consumer Price Index update, inflation was still hovering around 4.1%. That’s lower than it was in 2022 (which saw inflation peak at 7.8%) but still above the RBA’s comfort zone.
So what does the RBA do when inflation is too high? They increase the cash rate, which leads banks to increase the interest they charge on loans – like your home mortgage. Higher interest discourages spending and borrowing, which in theory should help slow down price increases.
But for everyday Australians, especially mortgage holders, that theory has a very real impact on the household budget.
What It Means For a Mid-Range Mortgage Holder
Let’s break this down with an example that we see quite frequently at TSP.
Imagine you have a $600,000 home loan on a variable rate. Before interest rate hikes started in 2022, many lenders were offering rates as low as 2.5%. Fast-forward to today, and those same variable rates are now sitting around 6.25%–6.5% – even higher in some cases.
Here’s what that means in dollars:
| Loan Amount | Interest Rate | Monthly Repayments (P&I) | Total Monthly Increase Since May 2022 |
|---|---|---|---|
| $600,000 | 2.5% (then) | $2,370 | — |
| $600,000 | 6.25% (now) | $3,702 | + $1,332 |
That’s over $1,300 more every month in repayments.
If you’re a dual-income household, that’s still a significant chunk of your budget gone, money that used to go toward kids’ sport, petrol, or even trying to save for a holiday. If you’re a single-income household or have experienced any reduction in work hours or rising rent if you’re an investor – it hits even harder.
And this doesn’t just affect new borrowers. Many Australians who took out loans during the low-rate boom of 2020–2021 are now rolling off fixed terms into a drastically different reality – a phenomenon often referred to as the “mortgage cliff.”
What About Inflation – Isn’t It Easing?
Yes and no.
Inflation has come down from the peaks we saw in late 2022, but it’s proving more “sticky” than expected. Services inflation (think healthcare, education, insurance) remains high. So while you may have seen fuel prices dip slightly, other essentials like insurance premiums and rent continue to climb.
This is why the RBA isn’t backing down just yet. They want to stamp out inflation sustainably, not just see it dip temporarily.
But in doing so, they risk creating what’s called a “mortgage squeeze”, where repayments rise faster than incomes, and households are forced to make difficult choices.
The Real-World Impact: Budget Stress and Decision Fatigue
At TSP, we’ve seen firsthand the toll this takes – not just on numbers, but on people.
Clients are telling us they’re:
- Cutting back on family activities
- Delaying property renovations
- Scaling back business investments
- Paying closer attention to utility bills and subscriptions
- Worried about renewing fixed-term loans that are expiring
And it’s not just mortgage holders. Renters are also feeling the effects, as landlords pass on increased mortgage costs to tenants.
So yes, a 0.25% rate hike might seem minor on paper. But stacked on top of the 12 previous rises since May 2022, it becomes a very loud whisper to Australian households: “Tighten the belt further.”
So What Can You Do About It?
Here’s the good news: You’re not powerless. There are practical steps you can take today to reduce the pressure and regain some control.
1. Review Your Current Loan Rate
Now is the time to shop around. Loyalty to a lender doesn’t always pay. We’ve seen clients reduce their interest rate by 0.5–0.75% simply by refinancing – or even just negotiating with their current bank.
If you don’t have the time or confidence to compare lenders, speak to your mortgage broker.
2. Check If You’re Rolling Off a Fixed Rate
If your fixed term ends this year, get ahead of the change. Contact your lender and find out what your new repayments will be. Don’t wait for the “surprise letter.”
3. Review Your Spending Habits
We know… budgeting advice is everywhere, and most of it feels a bit patronising. But small changes really do add up:
- Call your energy provider for a better rate
- Review subscriptions (Spotify, Disney+, gym etc)
- Delay big purchases until you’ve reassessed your monthly obligations
4. Consider Making Extra Repayments (If Possible)
Even $100 extra a month toward your mortgage now can save you thousands in interest later. If you have an offset account, even better.
5. Talk to an Accountant or Advisor
This is where we come in. At TSP, we can help you:
- Understand your after-tax income more clearly
- Strategically time deductible expenses if you’re self-employed
- Prepare for EOFY tax planning with cash flow in mind
If you’re a business owner, now is also the time to review your pricing, payroll obligations, and whether your business is absorbing more cost than it should be.
From One Household to Another: You’re Not Alone
As a Director of TSP- – and someone with a mortgage and kids myself – I feel the weight of these changes too. I’ve had the same conversations around our own kitchen table.
At the end of the day, interest rate hikes are blunt tools used to solve a complicated problem. And while they might work in the long run, they leave a lot of everyday Aussies feeling squeezed in the short term.
But you don’t have to navigate this alone.
We’re here to help you understand your numbers, create a plan, and make decisions that feel right for your situation – not just generic advice from a big bank.
If you want to sit down and review your current financial setup, whether personal or business-related, book in a no-pressure chat with us.
💬 Let’s Talk
Book a consultation with TSP
📞 4926 4155
Proudly based in Newcastle & servicing the Hunter
When not at work, Deidre enjoys spending time with her husband and two children, as well as indulging in audiobooks and coffee.
Areas of Expertise:
✅ Business structuring & compliance
✅ SMSF strategy & auditing
✅ Tax planning for individuals & businesses
📧 deidrem@tspaccountants.com.au
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