The RBA Is Expected to Raise Rates Again. What a 0.25% Rise Does to a $600,000 Variable Mortgage, and Whether to Pay Extra
The Reserve Bank of Australia meets on September 29, 2026 with the cash rate at 4.35% after three rises already this year, and all four major banks expect a fourth, to 4.60%. Inflation was 3.5% in the year to July and the underlying measure the RBA watches has not moved from 3.6%. If your home loan is variable, as most Australian mortgages are, that decision reaches your repayment within a few weeks. This post does the arithmetic on what one rise costs, what the three so far have cost, and whether sending extra money to the loan beats investing it.
Quick answer
On a $600,000, 30-year variable loan at 6.5%, a 0.25% rise lifts the repayment from $3,792 to $3,892 a month, about $100. The three rises already made in 2026 added roughly $290 a month to the same loan. Paying $500 extra a month at 6.5% ends the loan 8 years 2 months early and saves $240,674 of interest — a guaranteed 6.5% return. Investing that $500 at 7% instead finishes about $45,000 ahead after 30 years, but only if the market delivers 7% every year; the extra repayment is certain.
What a variable rate means for the next few weeks
In the United States a mortgage rate is usually fixed for 30 years, so a central-bank rise is a headline, not a bill. In Australia it is the opposite. A variable-rate loan moves with the lender's standard variable rate, and lenders typically pass on a cash-rate change within two to four weeks. There is no lock to protect you and no refinance to chase; the repayment simply changes.
That also means the past year's decisions are already in your repayment. Here is what each step of a cash-rate cycle does to a $600,000 loan over 30 years, using the mortgage payoff calculator's standard repayment formula. The 6.5% row is roughly where owner-occupier variable rates sit today — about two points above the cash rate — so read the row that matches your actual rate.
| Variable rate | Monthly repayment | Total interest over 30 years |
|---|---|---|
| 6.00% | $3,597 | $695,029 |
| 6.25% | $3,694 | $729,949 |
| 6.50% (about today) | $3,792 | $765,267 |
| 6.75% (after one more rise) | $3,892 | $800,972 |
| 7.00% | $3,992 | $837,053 |
| 7.25% | $4,093 | $873,501 |
Each quarter-point step costs about $100 a month and roughly $36,000 of extra interest over the life of the loan. The three rises in 2026, if your rate went from about 5.60% to 6.35%, took the repayment from $3,444 to $3,733 — $289 a month, or about $3,500 a year, that was not in your budget in January.
Why paying extra now is a better deal than it was a year ago
An extra dollar sent to a variable loan earns exactly the loan's rate, tax-free and guaranteed, for as long as the loan would otherwise have run. At 5.6% that was a fair return. At 6.5%, and possibly 6.75% next month, it is a return that very few safe investments can match after tax.
Run the same $600,000 loan at 6.5% with extra repayments through the calculator:
| Extra you send | Loan ends | Time saved | Interest saved |
|---|---|---|---|
| $200 a month | 26 years | 4 years | $121,990 |
| $500 a month | 21 years 10 months | 8 years 2 months | $240,674 |
| $1,000 a month | 17 years 6 months | 12 years 6 months | $359,518 |
| Fortnightly repayments (26 half-payments a year) | 24 years 2 months | 5 years 10 months | $174,513 |
| $20,000 lump sum today | 27 years 3 months | 2 years 9 months | $107,833 |
The lump-sum row is the one to notice. Twenty thousand dollars sent to the loan today removes $107,833 of future interest — more than five times its own size — because it stops compounding against you for 27 years. If a bonus or tax refund is sitting in a savings account, that is the comparison to make.
Pay extra or invest: the honest comparison
The question is never whether paying extra helps; it always does. The question is whether the same $500 a month would do more in shares. The calculator settles it fairly by measuring your wealth at the loan's original end date, month 360, under both paths.
Invest path. Keep the loan on schedule and invest $500 a month at an assumed 7% a year for 30 years. Final balance: about $610,000.
Pay-down path. Send the $500 to the loan. It is gone in 21 years 10 months. Then invest the whole freed-up repayment plus the $500 — about $4,292 a month — at 7% for the remaining 8 years 2 months. Final balance: about $565,000.
Investing wins on expectation by about $45,000. That is what the calculator's verdict calls a "close call": the mortgage rate of 6.5% is within a point and a half of the 7% assumed return, so investing edges it, but the 6.5% is contractual and the 7% is an average that includes 2008, 2020 and 2022. Raise the loan rate to 6.75% — one more RBA move — and the gap narrows to about $20,000. Drop the assumed return to 5% and the pay-down path wins outright. The whole decision lives inside that band, and the RBA is pushing it toward paying down.
Two things to have in place before you send anything: three to six months of expenses in cash, which the emergency fund calculator will size for you, and no debt at a higher rate. A credit card at 20% beats the mortgage every time.
The Australian twist: the offset account
Australian loans have a feature most of the world does not: the offset account. It is an ordinary transaction account linked to the loan, and every dollar sitting in it is treated as if it had been paid off the loan for interest purposes — but you can still spend it. $20,000 in an offset against a 6.5% loan saves the same interest as a $20,000 extra repayment, with none of the lock-up.
That changes the pay-down-or-invest question in a useful way. The liquidity argument for investing — "money sent to the loan is gone" — mostly disappears. You can hold your emergency fund in the offset, earn the equivalent of 6.5% tax-free on it, and still reach it tomorrow. For most households with a variable loan and an offset, the sequence is: fill the offset first, then decide about extra repayments and investing with what is left. Put your offset balance into the calculator as a lump sum and it will show you what the offset is worth in years and dollars.
What a rise does to the rest of the budget
A cash-rate rise is meant to slow spending, and it does so partly by raising your repayment and partly by leaving prices high while it works. At 3.5% inflation, a dollar of savings sitting in a transaction account loses nearly 30% of its buying power over ten years; the inflation calculator shows the exact figure for any amount. A high-interest savings account at around 4.5% keeps pace before tax and falls slightly behind after it. The offset, at the loan rate and tax-free, beats both — which is another reason the offset is the first place spare cash should go while rates are high.
What to do before September 29
- Find your actual rate on your latest statement and read the matching row in the first table. If a rise is coming, budget for about $100 more per $600,000 borrowed.
- Move your emergency fund into the offset if you have one. If you do not, ask your lender whether your loan allows it; many basic variable loans do not, and switching to one that does can be worth more than the fee.
- Run your own numbers through the mortgage payoff calculator with $200, $500 and a lump sum. The verdict line will tell you whether paying extra or investing is ahead at your rate.
- Set the extra repayment up as an automatic transfer on payday. A rise that arrives as a repayment change you have already absorbed is a non-event.
FAQ
How quickly does an RBA rise reach my repayment?
Lenders usually announce their variable-rate change within days and apply it within two to four weeks, with the repayment change following on the next cycle. If your loan is fixed, nothing changes until the fixed period ends, at which point you roll onto whatever the variable rate is then.
Is it better to pay extra or to put the money in an offset?
Financially they are the same: a dollar in the offset saves the same interest as a dollar of extra repayment. The offset keeps the money accessible; the extra repayment does not, unless your loan has a redraw facility. If you have an offset, use it first. If you do not, extra repayments are the same maths without the flexibility.
The RBA might cut in 2027. Should I wait?
Waiting costs you the interest in the meantime, and nobody knows when the cut comes. At 6.5%, a single $500 extra repayment made today removes about $1,500 of future interest by the time the loan would have ended; every month you delay forfeits that much. If rates fall, the guaranteed return on extra repayments falls with them and investing becomes relatively more attractive, so the decision simply tilts the other way then. It does not punish you for having paid extra now.
Does a 7% investment return assume too much?
Seven percent a year is roughly what Australian and international shares have returned over long periods, before tax and after inflation eats some of it. Some decades deliver far more, some far less. The calculator lets you change the assumption; at 5% the pay-down path wins outright, at 8% investing wins by more. The point is not to pick the right number but to see how narrow the band is.
Where do the $600,000 figures come from?
From the standard loan repayment formula the calculator uses, applied to a $600,000 balance over 30 years, with the extra-repayment cases simulated month by month. Every figure in the tables reproduces if you type the same inputs into the calculator.
Sources
- Reserve Bank of Australia — cash rate target -- the 4.35% cash rate and the 2026 decision history.
- Reserve Bank of Australia — monetary policy decisions -- the August 2026 statement and the September 29 meeting date.
- Australian Bureau of Statistics — Consumer Price Index, monthly indicator to July 2026 -- the 3.5% headline and 3.6% trimmed-mean figures.
- The four major banks' published cash-rate forecasts, September 2026 -- the expectation of a rise to 4.60%.