How Rising Interest Rates Affect Your Monthly Repayments

When the Reserve Bank of Australia raises the cash rate by 0.25%, the news coverage treats it as an abstract economic event. But for anyone with a variable rate mortgage, a 25-basis-point move is not abstract — it is a concrete change to your monthly outgoings. The question most people want answered immediately is: how much more will I actually pay each month?

The answer depends on three things: your loan balance, your remaining term, and the size of the rate change. This guide shows you the maths, gives worked examples across common loan sizes, and explains how to calculate your own number precisely.

The maths behind mortgage repayments

A standard principal-and-interest mortgage repayment is calculated using a fixed formula. Each month, you pay interest on the outstanding balance plus a portion of principal. As the balance falls, the interest component shrinks and more of each payment goes to principal — this is what an amortisation schedule shows.

The monthly repayment (M) for a loan of principal P, monthly interest rate r, over n months is:

You do not need to do this by hand. But understanding the formula shows why rate changes have a larger absolute impact on larger loans and longer terms — there is more outstanding balance for interest to compound on.

Worked examples: what 0.25% and 1% actually costs

The table below shows monthly repayments at different rates on 25-year loans of three common sizes. All figures are approximate and assume principal-and-interest repayments from the start of the loan.

A $600,000 mortgage at 5.50% costs $3,679 per month. A 1% rate rise — four 0.25% hikes — pushes that to $4,103 per month, an extra $424 every month or just over $5,000 per year. That is a substantial change in household cash flow that most budgets need to plan for explicitly.

Why the impact is larger on longer loans

A 30-year loan has more outstanding balance at every point in its life compared to a 20-year loan of the same initial size, because principal is being repaid more slowly. This means interest compounds on a larger amount for longer, making rate changes more impactful in absolute dollar terms on longer loan terms.

The flip side is that longer terms produce lower minimum repayments at any given rate, which is why borrowers often choose them for affordability — but at the cost of paying significantly more total interest over the life of the loan.

Interest-only loans: the rate impact is more direct

On an interest-only loan, you are not repaying any principal — every payment is pure interest on the outstanding balance. This makes the rate calculation simpler and the impact of rate changes more direct:

• At 5.50% interest-only, a $600,000 loan costs $2,750 per month.
• At 5.75%, the same loan costs $2,875 — exactly $125 more.
• At 6.50%, it is $3,250 — $500 more per month than at 5.50%.

Interest-only payments are lower than principal-and-interest payments in the short term, but the loan balance never decreases, which means the exposure to rate risk persists for the full interest-only period.

The cumulative effect of multiple rate rises

Australia's RBA has raised rates three times in 2026 alone. Each 25-basis-point move adds to the previous one. A borrower who was at 4.85% at the start of the year and has experienced three 25bp hikes is now at 5.60% — a 75bp total increase. On a $700,000 loan over 25 years, that shift alone adds roughly $320 per month compared to January's repayments.

If you have not recalculated your repayments since rates started rising, the cumulative gap between what you expected to pay and what you are actually paying can be significant. Knowing the actual number is the first step to managing it.

Calculate your exact number

LoanLens lets you enter your current loan balance, your remaining term, and your interest rate — and see your exact monthly repayment instantly, along with the full amortisation schedule showing how each payment is split between principal and interest. You can also enter a higher rate to see what your repayments would be if rates rise further — a useful exercise for stress-testing your budget before it matters.