The real cost of an RBA rate hike isn't $120 a month
On a $750,000 mortgage, the RBA's latest 25-basis-point hike adds about $121 to your monthly repayment. That figure is true and almost completely useless. It's measuring one cost — cash flow — and missing two others that compound much harder over time.
The +$X-per-month framing has dominated Australian rate-hike coverage for a decade. It's easy to calculate, easy to print, and easy to absorb. It also misses the way a rate change actually moves through your finances. There are three distinct costs to a single hike, and the monthly repayment is the smallest of them.
Here's how to think about it properly.
What the +$121-per-month figure actually measures
The headline number measures cash flow. It answers "how much more leaves your account next month."
It does not measure:
How much extra interest you'll pay over the life of the loan.
How much your borrowing power has shrunk if you go to buy again.
How the lost cash flow would have grown if it were invested.
It's the rate-hike equivalent of measuring a weight-loss programme by how much you sweat. Useful as a signal, useless as a measurement.
Cost 1 — Your borrowing capacity shrinks instantly
This cost lands the moment the rate moves, before your bank sends a letter.
Australian lenders are required by APRA to assess new home loans at the current variable rate plus a 3 percentage point serviceability buffer. If your bank's variable rate just rose from 6.00% to 6.25%, they're now assessing your application at 9.25% instead of 9.00%. (APRA prudential practice guide APG 223 sets this out.)
The exact dollar effect depends on your income, your existing debts, your dependents, and which bank's calculator you're running. The direction is unambiguous: same income, same expenses, smaller approved loan.
If you've been house-hunting at the upper edge of your pre-approval, the place you inspected last weekend may now be outside your budget. Not because anything about the property changed. Because the bank's calculator did. Your bank or broker can rerun your serviceability with the current rate to show you the new ceiling — and from there, our compound interest calculator lets you see how a different deposit-to-loan ratio plays out over decades.
Cost 2 — Your mortgage costs $43,000 more in interest
The +$121/month figure looks small in isolation. Look at it across 30 years and the same fact becomes a different number.
Take the same $750,000 mortgage. At 6.00% the total interest paid over a 30-year term is around $869,000. At 6.25%, it's around $912,000. That's $43,560 of extra interest from one 25bp move, paid as a slow drip every month for three decades.
If this is the second or third hike in the current tightening cycle — which most Australian variable-rate borrowers have lived through — the additional interest stacks linearly. Three hikes of 25bp each on the same loan is roughly $130,000 of extra interest over the life of the mortgage.
That's the same fact as +$121/month. It's just measured at the right horizon.
Cost 3 — The investment you didn't make
The third cost is the one almost nobody calculates. It's the largest, and the trickiest one to feel.
Every dollar that goes to mortgage interest is a dollar that didn't go to an ETF, a super contribution, or any other asset that compounds. Over a long horizon, the foregone returns dwarf the interest itself.
If $121 every month went into a balanced index fund returning 7% (a common long-term assumption for diversified equity portfolios — see Vanguard's index chart for historical context), after 15 years the position would grow to around $36,500. Over 25 years, $98,000.
You can verify the arithmetic in our compound interest calculator — punch in $121/month at 7% for 15 years.
This isn't a forecast. It's the size of the opportunity cost being absorbed when the cash flow is redirected to interest payments instead. Whether that matters to your plan depends on your assets, your timeline, and how much else you're investing.
Three costs, one tool
The three costs above all derive from the same 25bp move. They're not alternatives — they happen simultaneously, to the same person, on the same loan.
A monthly-repayment view shows one of them. A 30-year-interest view shows another. A long-term wealth view shows the third. Whichever lens you use, the cost compounds in the directions you'd expect — and the only way to see it for your numbers, not a worked example, is to model your specific position.
That's the work JettWorth's projection engine does. Plug in your actual loan, rate, term, savings rate, and target retirement age, and the engine surfaces what each rate move does to your trajectory. Not "the average Australian." You.
A note on framing
A common pushback to all of this: "but hikes also help savers." Technically true. The behaviour of Australian banks during a tightening cycle is well documented — mortgage rates pass through within weeks, savings rates lag by months and rarely pass through in full. The RBA's Statement on Monetary Policy tracks the lag explicitly.
The point isn't that this is unfair. The point is that the upside on the savings side is smaller and slower than the downside on the mortgage side, so the netting-out most coverage implies doesn't really happen for the average household over the short term.
The bottom line
The +$121/month framing tells you what your next bill looks like. It doesn't tell you what just happened to your wealth.
Run the same hike through three lenses — cash flow, total interest, and foregone investment — and you get three different numbers, all true, all from the same event. The conventional headline reports one of them and skips the others.
Open your projections and run the new rate environment against your current plan. The arithmetic doesn't change. Only how clearly you can see it.
JettWorth is an insights platform. We surface what your numbers say — we do not provide financial advice. The figures above are illustrative calculations on representative loan inputs and may not reflect your specific position. JettWorth does not hold an Australian Financial Services Licence. For decisions about your personal circumstances, speak to a licensed financial adviser.