If you have a mortgage or are thinking about getting one, it’s important to understand how interest rate rises might impact you. A little knowledge goes a long way, especially when it comes to rising interest rates.

What is an interest rate rise and why does it happen?

The interest rates that banks set for home loans are influenced by a number of factors. Think about it like a delicate balancing act:

• banks often change interest rates in order to attract or retain customers
• to balance the needs of both home loan and deposit holders, or 
• due to changes in the economy.

The Reserve Bank of Australia (RBA) is responsible for Australia’s monetary policy. One way they try influence the  amount of money in the economy is by setting the “cash rate.” each month. They meet and discuss the cash rate the first Tuesday of every month except January.

The economy is currently experiencing inflation, which basically means the cost of the goods and services you buy are going up. In an attempt to bring inflation down, the RBA has increased the cash rate..

The RBA does not control the interest rates offered by banks, but it does influence them. When the cash rate increases, this may increase the cost for banks to fund their lending customers. Just like many other businesses, banks across Australia have lifted their interest rates to account for this increasing cost.

How might a rate rise affect borrowers?

The impact a rate rise might have on you will depend on what kind of loan you have. If you have a variable rate loan, the interest rate can go up and down at any time. So if the bank increases their interest rates, this will mean you will be paying more interest on your loan. Your minimum repayment may also increase within a month or so of the change to make sure you pay the loan off in the same amount of time.

If you have a fixed rate loan, you are protected from any unexpected rate increases because your interest rate and repayments are locked in for the period you chose to fix the loan. However, this doesn’t mean rate increases won’t impact you.

If you fixed your home loan for a period, and variable interest rates increase during that period, you may see a sharp increase in your repayments at the end of your fixed interest period when your loan changes to a variable rate. The same situation may occur if you decide to refix the loan.

If you have a variable loan, you will progressively see your repayments increase if interest rates begin to rise. That may give you more time to adapt and manage your budget. If you’re a fixed loan customer, being prepared for the potential of a sharp increase at the end of your fixed rate is really important.

Preparing for an interest rate rise

There are things you can do to prepare for an interest rate rise.

Consider making time for a budget health check:

• When reviewing your budget, it’s a good time to identify any subscriptions or other recurring expenses that you could cancel to reduce your expenses if you need to.
• Talk to your utility providers to ensure you’re not overpaying for things like internet, electricity and gas, and review your insurance policies too.
• Making better choices around energy consumption, food waste and transportation can also add up to some significant savings in your budget.  

Take a look at the details of your home loan

• Consider making additional repayments if you can afford it. Getting ahead on your loan while the interest rates are lower will not only reduce the interest you’ll pay over the lifetime of the loan, but it can also help to build a safety net of advance payments that you can then use to help cover your repayments or other expenses in the future. Fixed rate customers with Suncorp Bank can also do this, just be aware you won’t have access to redraw any advance funds until your fixed period ends, and there is a $500 month limit on the extra amount you can pay each month before the Early Interest Payment Adjustment (EPIA) fee applies. 
• If you haven’t reviewed your loan in a while, talk to your bank about whether you are still on the most suitable product. For some people fixing your loan for a period of time could give you more certainty with regard to your repayments. For others, variable rates offer more flexibility. You may have the option at Suncorp Bank to ‘split’ your loan to have some on variable, and some on fixed.

What can borrowers do if they're struggling to make their mortgage repayments?

IIt’s important that borrowers understand that help is available if they are, or think they might have difficulty meeting their home loan repayments. The sooner you let your bank know about your situation, the quicker they will be able to provide options to help you get back on track.

• Suncorp Bank customers can contact us on 1800 225 223 (8:30am-5pm, Mon-Fri, AEST) or find out how to submit a request for assistance. Our Customer Assist team can help you get the support you need.
• Speaking to a financial counsellor. They can help you understand your options and find a way to get back on track.

Get in touch with a lending specialist

The good news is that there are lending specialists who can help you understand how rate rises may impact your home loan. If you’re an existing Suncorp Bank customer, call us on 13 11 75.

If your home loan is with another lender, we can guide you through the process of refinancing or making sure you find the right home loan for your needs with Suncorp Bank. All consultations are 100% obligation-free.

Talk to a home loan expert

Published 24 February 2023