An RBA rate change – What it could mean for construction workers

Written by Dona Edwards (AR 1262208) authorised representative of Industry Fund Services Limited (AFSL 232514)

If you’re an Incolink member juggling a mortgage while working in the construction industry, changes to interest rates can have a real impact on your household budget. With expectations that interest rates may rise, it's important to understand what an increase could mean for your home loan, your repayments, and overall borrowing costs.

What’s happening with interest rates?

The Reserve Bank of Australia (RBA) sets the the cash rate to help manage inflation and support economic stability. The RBA aims to keep inflation within a long-term target range of 2–3%.

When the cost of living continues to rise, the RBA may increase the cash rate to help slow spending in the economy. The cash rate itself is not a home loan interest rate, but it influences the rates banks charge on loans and other products.

When the cash rate increases, banks often raise home loan interest rates, particularly on variable‑rate loans. Higher home loan interest rates make borrowing more expensive, which can lead households and businesses to spend less and help ease price pressures over time.

What should you do now?

For building and construction workers with a mortgage, a rise in interest rates could mean higher home loan repayments. For new borrowers, higher interest rates may reduce borrowing power and affect how much you're able to borrow.

Have an existing mortgage? A change to repayment amount.

If you have a fixed-rate mortgage, changes to the cash rate won’t affect your loan repayment during the fixed period, because your interest rate is locked in for an agreed time.

If you’re on a variable-rate loan, a rise in interest rates can lead to higher loan repayments. How much your repayments change will depend on how much of the increase your lender passes on.

When home loan interest rates go up, borrowing becomes more expensive. This can slow down spending across the economy.

Banks generally will adjust their home loan interest rates in response to changes in the RBA cash rate, but they don’t have to. In the past, some lenders have passed on only part of a change, or none at all.

Are you a “new borrower” or refinancing? A slight change to borrowing power.

1. Higher interest rates: When home loan interest rates rise, generally borrowing becomes more expensive.
2. Reduced borrowing capacity: Higher repayments may make it harder for you to meet a lender’s serviceability requirements, which can reduce how much you’re able to borrow.

My repayments have increased, what should I do?

If interest rates rise, your lender may increase the minimum amount you need to repay if you’re on a variable rate loan.

This can place extra pressure on household budgets. Some people may need to adjust their spending to manage higher repayments, while others may already have some flexibility in their budget.

Times are tough for many households and every dollar counts. What’s right for you will depend on your own circumstances and what you can comfortably afford.

What could a rate rise mean for my mortgage?

Official RBA data shows that the average home loan interest rate across existing owner‑occupier loans sits in the mid‑5% range, reflecting a mix of older fixed‑rate and variable loans. Publicly available market data shows that variable‑rate borrowers may be paying higher or lower rates, depending on their loan and circumstances. Some lenders are currently advertising variable rates from around 4.99%, although these rates may not be available to all borrowers.

To help show how a change in interest rates can affect repayments, the examples below look at what repayments could be if a home loan was taken out today at different interest rates.

For illustration purposes, the examples use a starting interest rate of 6.00%, which sits within the range of current home loan interest rates. The scenarios then show how a 0.25% increase could affect monthly repayments.

(Sources: https://www.rba.gov.au/statistics/interest-rates/, https://www.finder.com.au/home...)

Loan term:

What if it was a 30-year loan term?

All rates are rounded to the nearest dollar.

These examples show how a 0.25% increase in interest rates could affect monthly repayments.

The examples are for illustration only. The actual impact a rate change may have on your mortgage repayments will depend on your current loan amount, interest rate applied, existing repayments and the remaining term of your loan.

What’s Next?

Interest rates can change over time depending on economic conditions. Whether rates rise, fall or stay the same, changes to interest rates can affect household budgets in different ways.

If interest rates increase, it can help to understand how higher repayments might affect your cash flow. Even small changes in interest rates can have different impacts depending on your loan and personal circumstances.

If you’re currently paying a higher interest rate, it may be worth checking in with your bank or speaking with a mortgage broker to better understand your options.

You may also find value in independent review services like OwnMoney’s free home loan review service, which can help you understand how your current rate stacks up. You can book here.

Dona Edwards

Financial Adviser, IFS – Supporting Incolink Members

Issued by Industry Fund Services Limited (AFSL 232514) (IFS) | phone 1300 680 821.

Written by Dona Edwards (AR 1262208) | 1 Pelham Street, Carlton VIC 3053 | phone 0459 758 637. Dona is an authorised representative of IFS.

General advice only. Does not consider your personal circumstances. Consider if the advice is appropriate before acting on it and read the relevant product disclosure statement.

IFS and Incolink have entered into an agreement for IFS to provide financial advisory services to Incolink and its members.