A worked illustration shows how a 0.25 percentage point increase in a hypothetical variable mortgage rate changes monthly repayments on a $550,000 loan, along with the caveats every such example needs.

Headlines about the cash rate are usually expressed in basis points. Household budgets are expressed in dollars. Translating one into the other is the purpose of this article.

On 29 September 2026, the Monetary Policy Board raised the cash rate target by 25 basis points, from 4.35% to 4.60%, effective 30 September. A basis point is one-hundredth of a percentage point, so 25 basis points is a quarter of a percentage point. The example below shows what a rise of that size could mean for one hypothetical loan.

The illustration

This is an illustration only. The interest rates used are hypothetical. They are not RBA figures, they are not any lender's rates, and the RBA has not produced this calculation.

Assume a borrower has a $550,000 principal-and-interest loan over 30 years, with monthly repayments, and that the interest rate on that loan moves from 6.00% to 6.25%, a rise of 0.25 percentage points.

  • At an illustrative 6.00%: monthly repayment of about $3,297.53.
  • At an illustrative 6.25%: monthly repayment of about $3,386.44.
  • Difference: about $88.92 a month.

Over a year, that difference amounts to roughly $1,067. If the higher rate applied unchanged for the full 30-year term, an assumption made purely for illustration, total repayments would be about $32,010 higher. These extended figures are illustrative arithmetic based on the same assumptions, not projections.

Why interest rises faster than the repayment

One detail often surprises borrowers. In this illustration, the interest charged in the first month rises by more than the repayment does.

At an illustrative 6.00%, the first month's interest on $550,000 is $2,750.00. At 6.25%, it is about $2,864.58, an increase of about $114.58. Yet the total monthly repayment rises by only about $88.92.

The reason is how principal-and-interest loans work. The repayment is calculated so that the loan is paid off over the full term. When the rate rises, more of each early payment goes to interest and less goes to reducing the principal. The higher repayment still clears the loan over 30 years, but in the early years the balance falls more slowly than it would have at the lower rate.

Caveats that matter

Real loans rarely behave as neatly as a worked example. Some of the reasons the illustration may not match a particular borrower's experience:

  • Pass-through is a lender decision. Changes to the cash rate influence variable mortgage rates, but each lender sets its own rates and timing. This article does not state how any lender has responded.
  • Loan balances and terms differ. A borrower who is several years into a loan will have a smaller balance and fewer years remaining, which changes the dollar impact.
  • Fixed-rate loans are not directly affected by a cash rate change until the fixed period ends.
  • Interest-only loans respond differently, because repayments cover interest alone.
  • Offset and redraw balances reduce the interest charged where they are linked to the loan.

Governor Michele Bullock made the offset point at her 29 September media conference: "remember that a lot of people have a mortgage, and then they have an offset account, which sits in the background."

Where this sits in the bigger picture, and questions borrowers ask

September's rise was the fourth increase in 2026, according to the Governor, following three earlier in the year between February and May. The size of those earlier moves is not covered in this illustration, which looks at a single quarter-point change.

The RBA's own data on borrowers give context. The minutes of the September meeting record that scheduled mortgage payments have risen to around 10% of household disposable income, around their 2024 peak. They also record that less than 2% of owner-occupier borrowers faced a cash-flow shortfall, and that median savings buffers ranged from just under one year of scheduled repayments in the lowest income quintile to almost two years in the highest.

The October 2026 Financial Stability Review says the median borrower is "able to cover over a year of scheduled mortgage payments at current interest rates", counting offset and redraw balances.

The Board's reason for raising rates was inflation. Headline CPI rose 4.0% over the year to August 2026 on the monthly measure. The trimmed mean, the RBA's preferred underlying measure, was 3.6% over the year to the June quarter. Both are above the 2–3% target. "Higher interest rates are needed to ensure inflation returns to target," Bullock said, while also acknowledging: "Now, I know this decision is difficult for households with a mortgage and businesses with loans". She argued that the alternative also carries costs, because "high inflation hurts all Australians, especially the most vulnerable."

Bullock has also said rate changes take about 12 to 18 months to have their full effect on the economy. Higher repayments, of the kind shown in this illustration, are one of the ways that effect works through household spending.

An illustration like this can prompt practical questions. Borrowers may wish to understand:

  • what rate their own loan currently carries and when any change takes effect
  • how much is sitting in any linked offset or redraw facility
  • how their repayment would change under different hypothetical rates.

Lenders' online calculators and statements can help with the mechanics. For decisions about a specific loan, licensed professional advice is the appropriate source.

The Board has not committed to any future path. It says it will act as needed, "including increasing the cash rate target further if required", and the next cash rate update is due at 2.30 pm on 3 November 2026.

The bottom line

In this illustration, a 0.25 percentage point rise on a $550,000, 30-year principal-and-interest loan adds about $88.92 to the monthly repayment, from about $3,297.53 to about $3,386.44. The figures rest on hypothetical rates and are not RBA or lender numbers. Actual effects depend on each loan's balance, term, structure and lender, and on any offset or redraw balances.