Interest Rate Impact Calculator

Interest rate movements have a compounding effect on mortgage repayments that most landlords underestimate. A 0.25% increase sounds small in isolation. On a $500,000 variable rate loan with 25 years remaining, that quarter-point rise adds roughly $80 per month to your repayments. That is close to $960 a year you were not paying before.

Scale that up and the numbers get serious quickly. If rates rise by a full percentage point over the course of a year (four consecutive 0.25% increases), the same $500,000 loan costs you an extra $320 or so per month, around $3,840 per year. Hold two investment properties with similar loans and you are looking at nearly $8,000 in additional annual costs.

What makes this particularly painful is the compounding nature of mortgage interest. You are not just paying more interest on the original balance. Each repayment period, the higher rate applies to whatever principal remains. Over the full remaining term of a 25-year loan, a 0.25% increase on $500,000 adds roughly $14,000 to the total interest you pay. A 1% increase adds north of $55,000.

For investment property owners, these increases are tax-deductible since mortgage interest is a legitimate expense against rental income. That softens the blow at tax time, but it does not eliminate the cash flow pressure between now and then. You still need to find that extra money each month.

This is why tracking the actual impact matters. A vague sense that "rates went up a bit" is not enough when you are budgeting across multiple properties with different loan balances and terms. Knowing the precise dollar figure for each property lets you make informed decisions about rent reviews, loan structures, and whether your portfolio is still working for you financially.

The Reserve Bank of Australia sets the official cash rate at its board meetings, which occur eight times a year. When the RBA changes the cash rate, it does not directly change your mortgage rate. Instead, it changes the rate at which banks borrow from each other overnight, and your lender then decides whether and how much to pass on to borrowers.

In practice, most lenders pass on the full cash rate change to variable rate mortgage holders. They typically announce the change within a day or two of the RBA decision, and the new rate takes effect within one to two weeks. Your next repayment after that effective date will reflect the higher (or lower) amount.

There are exceptions. Banks occasionally absorb part of a rate cut, keeping more margin for themselves. Less commonly, they pass on more than the RBA change, citing increased funding costs. During periods of aggressive rate rises, some lenders quietly add a few basis points on top of each official increase. The gap between the RBA cash rate and what you actually pay (often called the "spread" or "margin") has widened significantly since the early 2020s.

If you are on a fixed rate, RBA changes have no immediate effect on your repayments. Your rate stays locked until the fixed period expires. However, the cash rate trajectory during your fixed term influences what variable rate you will revert to afterwards. If rates have risen substantially while you were fixed, the adjustment on reversion day can be a shock.

For a deeper look at how recent RBA decisions affect your repayments, see our RBA rate rise mortgage calculator guide, which walks through the maths with real examples. The key takeaway is that your mortgage rate tracks the cash rate closely but not perfectly, and checking your actual rate against what competitors offer is always worth doing after any RBA move.

Choosing between a fixed and variable rate on an investment loan is one of the most debated decisions in property investing. Neither option is universally better. The right choice depends on your cash flow tolerance, your view on where rates are headed, and how long you plan to hold the property.

Variable rates move with the market. When rates drop, your repayments fall. When they rise, you pay more. The advantage is flexibility: most variable loans let you make unlimited extra repayments, use an offset account, and redraw funds without penalty. The risk is unpredictability. If rates spike, your holding costs jump with no warning beyond the RBA announcement.

Fixed rates lock your repayment for a set period, usually one to five years. You know exactly what you will pay each month, which makes budgeting simple. The downside is that you lose flexibility. Extra repayments are usually capped, offset accounts may not be available or fully functional, and if you need to break the fixed term early (because you sell the property or refinance), break costs can run into thousands of dollars.

From a tax perspective, the ATO treats fixed and variable interest identically. Both are fully deductible on an investment property loan. Break costs, if you incur them, are also deductible in the year you pay them, which is a detail many landlords miss. Our guide to borrowing expenses on investment properties covers the full range of deductible loan costs.

A common middle-ground approach is a split loan: fixing a portion (say 60%) for repayment certainty and keeping the rest variable for flexibility and offset access. This hedges your position without fully committing to either side. Talk to your mortgage broker about the right split for your situation, especially if you hold multiple properties and want to stagger fixed terms so they do not all revert in the same year.

When you apply for an investment loan, the bank does not assess whether you can afford repayments at the current interest rate. It assesses whether you can afford repayments at a much higher rate, typically 3 percentage points above the rate you are actually offered. This is called the "serviceability buffer" or "assessment rate."

APRA (the Australian Prudential Regulation Authority) sets the minimum buffer at 3%. So if your lender offers you a variable rate of 6.20%, the bank assesses your ability to repay as if the rate were 9.20%. That is a massive difference in monthly repayments. On a $500,000 loan over 25 years, the jump from 6.20% to 9.20% increases the assessed monthly repayment from roughly $3,290 to $4,260, an extra $970 per month that you need to demonstrate you can cover.

This buffer exists to protect borrowers and the banking system from rate shocks. It means that even if rates rise significantly from where they are today, borrowers approved under the buffer should still be able to meet their repayments without severe financial distress.

For property investors, the buffer has a direct impact on borrowing power. Because each existing loan is also stress-tested at the higher rate, adding a second or third investment property becomes progressively harder. The bank counts the full buffer-rate repayment on every loan you hold, even if you are currently paying much less. This is one of the main reasons investors find their borrowing power drops sharply after their first or second purchase.

If your borrowing power seems lower than expected, the buffer rate is almost certainly why. Some lenders apply slightly different buffers or use different income-shading rules for rental income, which means shopping around genuinely matters. A broker who works with investors regularly will know which lenders assess rental income most favourably and where you are likely to get the best result.

Let's walk through a concrete example. Say you have a $600,000 variable rate investment loan at 6.25% with 25 years remaining. Your current monthly repayment on a principal and interest basis is approximately $3,975.

If rates rise by 0.50% (two consecutive RBA increases of 0.25%), your new rate becomes 6.75%. Your monthly repayment jumps to roughly $4,165. That is an increase of $190 per month, or $2,280 per year.

Over the remaining 25-year loan term, the extra interest from this 0.50% increase totals approximately $32,000. That is $32,000 more in interest payments over the life of the loan, purely from a half-percentage-point rate change.

Now consider the rental income side. If your property rents for $580 per week ($30,160 per year) and your total holding costs were already $33,000 before the rate rise, you were already running at a loss of $2,840. The rate increase pushes that annual loss to $5,120. You have gone from modestly negatively geared to more deeply negative.

The tax offset helps. At a 37% marginal rate, the extra $2,280 in deductible interest saves you roughly $844 in tax. So the real after-tax cost of the rate rise is closer to $1,436 per year. Still real money, but the deduction takes the edge off.

This kind of scenario analysis is exactly what helps you decide whether to review your rent, fix your rate, or simply accept the temporary cash flow hit. Use the calculator above to model your own loan details and see the impact in real numbers. If you want to see where you stand across all your holding costs, the cash flow calculator pulls it all together.