When rates change: what to check in your budget and debts

Key points

• A Reserve Bank decision only changes some of your repayments: variable home loans move, most personal loans are fixed, and credit card rates were already high before the announcement and stay there after it.
• A 0.25 percentage point move on a $500,000 home loan changes the repayment by roughly $75-80 a month (illustrative) – which is about $18 a week.
• The same short review works whether rates went up, down or stayed the same: confirm what changed, check your week-to-week, check the buffer, check what your lender did to your term, then decide if comparing loans is worth the effort.
• Nothing in your budget changes on the day of the announcement itself – the changes arrive later, through your lender, with notice. Treat the news as a reminder to run the review.

The Reserve Bank meets, the decision leads the news for an evening, and then the news cycle moves on. If you're carrying a home loan or a few debts, the useful move is to run the same short review each time, rather than following the commentary – it works whether the decision was a rise, a cut or a hold. Below is that review. It takes maybe 20 minutes, and most of it is confirming what your lender actually did rather than making big decisions.

Which of your repayments actually change?

Fewer than the news coverage suggests. A cash rate move flows through to products with variable rates, on the lender's timetable rather than the RBA's:

So the announcement mostly matters if you hold a variable home loan, and it matters a little if your savings rate moves.

Your credit card doesn't get cheaper on a cash rate cut, and your Afterpay instalments don't go up on a rise – neither follows the RBA's decision.

Check these 5 things

1. Confirm what actually changed, and from when. Your lender will notify you of the new rate, the new repayment and the date it starts – often several weeks after the announcement. Until that notice arrives, nothing has happened to your budget yet.

Pro tip: Connecting your accounts in WeMoney lets you see every repayment in one place, so when a rate notice arrives you can check what actually changed against what you expected.

2. Put a number on your week-to-week. A 0.25 percentage point move on a $500,000 loan over 25 years shifts the repayment by roughly $75-80 a month (illustrative) – about $18 a week. Scale that to your balance, then decide where it comes from (on a rise) or where it should go (on a cut). A cut can disappear into general spending unless you decide where the freed amount goes.

3. Check the buffer still fits. If repayments went up, the amount you keep between yourself and the next surprise bill may need topping up before anything else. If they went down, the freed amount is a painless way to grow it.

4. Check what your lender did to your term. When rates fall, many lenders keep your repayment the same unless you ask, which pays the loan off sooner. When rates rise, the repayment usually rises to protect the term. Neither is wrong, however it's worth knowing which one happened to you (the choice changes what the loan costs over its life).

5. Decide whether comparing loans is worth the effort right now. Rate-change weeks are when lenders move their offers around, so it's a reasonable moment to check what your rate looks like against the market. Whether switching is worth it comes down to the fees, the remaining term and the size of the gap, not the headline rate alone – and sometimes a small saving doesn't justify the paperwork. That comparison has its own place to be worked through properly.

If several debts are affected at once

For most households the review above is the whole job. However if a rate rise lands on top of a variable loan, a couple of credit cards and an instalment plan or two, the 0.25 percentage point move may expose that too many repayments are already coming out of the same pay cycle. In that situation it can be worth looking at whether the structure of the debts is the thing to fix, because reorganising several expensive balances is sometimes what creates the room a rate rise just removed. That assessment should be made calmly against your own numbers, not on decision day.

If the numbers already don't close – if essentials plus minimum repayments exceed what's coming in – the right move is your providers' hardship teams and the National Debt Helpline on 1800 007 007, early, before missed payments start doing damage.

The WeMoney app can help you see all of this in one place once your accounts are connected: the repayments that move when rates change, the ones that don't, and the buffer sitting beside them. What you do next is still your decision, and by this point you should have the main numbers you need to make it.

Sources

• Reserve Bank of Australia: Cash Rate Target
• Moneysmart: Mortgage calculator
• Moneysmart: Urgent help with money

This article provides general information only. It does not take your personal circumstances into account and is not financial, credit or legal advice. Consider your own situation and seek advice from a suitably qualified professional if you need it.