The Reserve Bank's October Financial Stability Review finds the typical mortgage holder has enough tucked away in offset and redraw accounts to cover more than 12 months of scheduled repayments, a finding that offers useful context for how households are coping with four rate rises this year.

Much of the public conversation about interest rates focuses on what goes out of household accounts each month. Less attention goes to what has been quietly building up alongside the loan. According to the Reserve Bank's October 2026 Financial Stability Review (FSR), released on 1 October, that second number is substantial.

The review estimates that "the median borrower [is] able to cover over a year of scheduled mortgage payments" from money held in offset and redraw facilities. In a year in which the cash rate target has risen from 3.60 per cent to 4.60 per cent, that cushion sits alongside the RBA's broader assessment that most mortgage households are well placed to cope.

What the buffer is, and where it sits

Offset and redraw facilities are features of many Australian home loans. An offset account is a transaction or savings account linked to the mortgage, where the balance reduces the amount of the loan on which interest is charged. A redraw facility lets borrowers access extra repayments they have made in advance. Either way, the money is available to the borrower while also lowering their interest costs.

Governor Michele Bullock described the arrangement at her 29 September media conference: "a lot of people have a mortgage, and then they have an offset account, which sits in the background." It is the "background" part that makes the cushion easy to overlook. Headline measures of mortgage debt and repayments do not necessarily show how much cash borrowers have set aside against their loans.

Bullock also noted that these balances have grown over time: "the amount of money in those offset accounts has actually grown quite a lot over the last decade or so."

Why a median matters, and what it hides

The FSR's measure is based on the median borrower, which means half of borrowers have a buffer at least that large and half have less. The finding is a useful snapshot of the typical position, but it does not describe everyone.

Some households will have very large balances in their offset accounts, while others may have little or nothing set aside. The RBA acknowledges that the picture is not uniform. Its accompanying media release said most mortgage households are well placed to cope even with a sharp fall in house prices, but that there are some pockets of stress.

Other figures in the review help fill in the picture:

  • Cash-flow shortfalls: the share of variable-rate owner-occupier borrowers whose income does not cover essential spending and loan payments "remains relatively low at around 2 per cent", and is projected to stay "a little under 2 per cent for some time".
  • Arrears: loans 90 or more days behind have risen slightly but the share "remains around pre-pandemic levels".
  • Negative equity: fewer than 1 per cent of borrowers owe more than their property is worth.
  • Adverse scenario: in a very adverse scenario, the share of mortgagors at higher risk of default rises to about 5 per cent.

Taken together, the data suggest that while most borrowers have room to absorb higher repayments, a minority are under real pressure.

The pressure the cushion is absorbing

The buffers matter because repayments have climbed. Assistant Governor (Financial Markets) Christopher Kent said on 13 August, when the cash rate was 4.35 per cent, that "Scheduled mortgage payments have risen and are now close to their 2024 peak as a share of household disposable income." The FSR notes that "Scheduled mortgage payments have been the largest claim on household income".

The September increase added to that load. Bullock said mortgage payments were "back up sort of around 10 per cent of" disposable income, her own approximation, and compared this with "when we had interest rates at 4.35 per cent, so they'll go up a bit further."

To give a sense of scale, consider a hypothetical illustration that is not RBA data. On a $400,000 variable principal-and-interest loan over 30 years, starting from an assumed rate of 5.60 per cent, four 25 basis point rises passed on in full would lift monthly repayments from $2,296.32 to $2,554.64. That is an increase of about $258.32 a month, or roughly $3,100 a year. For a borrower in that example, a year of repayments at the higher rate would be more than $30,000. Actual rates and outcomes vary by lender and borrower.

A cushion that cuts two ways for policy

From a financial stability perspective, large buffers are reassuring. In general terms, savings held against a loan give a household time to adjust to higher repayments or a temporary loss of income. The FSR concludes that the financial system is resilient and that most mortgage households are well placed to cope, even with a sharp fall in house prices.

From a monetary policy perspective, the picture is more nuanced. The Monetary Policy Board raises interest rates in part to slow spending and ease inflation. Households drawing on savings rather than cutting back could, in principle, blunt that effect for a time. Bullock has stressed that much of this year's tightening is still working through: "A lot of that effect is still to flow through." She said it "can take 12, perhaps even 18 months" for the full impact to be felt.

Inflation remains the Board's focus. Headline inflation was 3.9 per cent over the year to the June quarter and the monthly CPI indicator showed 4.0 per cent for August. The trimmed mean, a measure of underlying inflation, was 3.6 per cent in the June quarter, and Bullock described underlying inflation as "about 3.5 per cent". The target range is 2–3 per cent.

The bottom line

The median mortgage holder has more than a year of scheduled repayments sitting in offset and redraw accounts, according to the October FSR. That hidden cushion sits alongside other relatively reassuring readings: arrears remain around pre-pandemic levels, and only around 2 per cent of variable-rate owner-occupiers face a cash-flow shortfall, even after four rate rises in 2026.

The median is not the whole story, though. Buffers are unevenly spread, the RBA itself identifies pockets of stress, and repayments are set to "go up a bit further". The Board's next decision is due at 2.30 pm on 3 November, and Bullock has said she is "not going to give you forward guidance" on what it will be.