Explainer / Home loans
Cash rate and home loan rate: what's the difference?
The RBA's cash rate influences lending costs. The rate on your own mortgage is a separate price set by your lender.
The cash rate is the Reserve Bank of Australia's policy interest rate. A home loan rate is the interest rate a lender charges on a mortgage. Changes in one can influence the other, but they are not the same rate.
How are they connected?
Cash rate changes can affect the cost of funding for lenders. The RBA explains that lenders also use deposits and other funding sources, whose costs may move at different speeds or by different amounts. A lender then sets its own loan pricing.
That means a cash rate decision does not automatically change every mortgage rate by the same amount or on the same day. Fixed and variable loan contracts can respond differently. Check your current loan terms and the lender's notices for what applies to you.
What should borrowers compare?
- Your actual interest rate and whether it is fixed or variable.
- The comparison rate, fees and total repayment cost shown in the loan's Key Facts Sheet.
- Useful features such as offset or redraw, and any conditions or fees attached.
- Whether the repayment still fits your budget if rates or circumstances change.
ASIC MoneySmart recommends comparing costs and features together when choosing a home loan. A lower advertised rate alone does not tell the whole story.
Sources and further reading
- Reserve Bank of Australia — Banks' funding costs and lending rates
- ASIC MoneySmart — Choosing a home loan
This article does not quote current rates or predict a future cash rate decision. Confirm current So Money product information before you rely on it.