As Australia’s premier home loan lender, emoney Home Loans has been at the forefront of the lending industry for over 26 years. We pride ourselves on partnering with the most powerful banks and lenders to provide our clients with competitive and flexible home loan solutions. However, in a constantly evolving economic landscape, it’s essential to understand how rising interest rates can significantly affect borrowers’ capacity to secure loans. In this blog, we delve into the intricacies of rising rates and their impact on borrowing capacity, empowering potential homeowners to make informed decisions.

1. Understanding Rising Interest Rates

Interest rates play a pivotal role in the financial ecosystem, influencing the borrowing and lending behaviour of individuals and institutions alike. In Australia, the Reserve Bank determines the official cash rate, which serves as the benchmark for interest rates across the economy. When the Reserve Bank raises this rate, it signals a tightening of monetary policy in response to inflationary pressures or economic growth. Consequently, lenders raise their borrowing rates, affecting both variable and fixed-rate home loans.

2. The Ripple Effect on Borrowing Capacity

For aspiring homeowners, the impact of rising interest rates on borrowing capacity can be substantial. Borrowing capacity refers to the maximum amount a lender is willing to lend a borrower, based on their financial situation, income, expenses, and current interest rates. As interest rates increase, the cost of servicing a home loan rises, potentially reducing the amount a borrower can access. This effect becomes more pronounced with variable-rate loans, as the repayments adjust in tandem with interest rate fluctuations.

3. Affordability Concerns

With rising rates, potential borrowers may find it challenging to qualify for loans that were previously within their reach. As interest expenses increase, lenders may require borrowers to demonstrate higher incomes or larger down payments to maintain affordability. This scenario could deter some individuals from entering the housing market altogether, leading to a slowdown in the real estate sector.

4. Impact on Existing Borrowers

Rising interest rates not only impact new borrowers but also affect existing homeowners with variable-rate mortgages. As interest rates rise, their monthly repayments increase, putting strain on household budgets. This situation may lead to decreased consumer spending and potential financial stress for some homeowners. However, borrowers with fixed-rate mortgages remain shielded from immediate rate hikes during the fixed-term period.

5. Mitigating Strategies for Borrowers

Despite the challenges posed by rising rates, potential homebuyers and existing borrowers can adopt several strategies to mitigate the impact on their borrowing capacity. Here are some approaches:

a. Locking in Fixed-Rate Loans: Opting for a fixed-rate mortgage offers protection against rising interest rates, providing stability in repayments during the fixed period.

b. Increasing Down Payments: A larger down payment reduces the loan amount required and may improve the chances of loan approval even with higher interest rates.

c. Paying Down Debts: Reducing existing debts and improving credit scores can enhance borrowing capacity, making it easier to qualify for a home loan at higher interest rates.

d. Seeking Professional Advice: Working with experienced mortgage brokers, like emoney Home Loans, can offer insights into available loan options and strategies to secure the best possible terms amid rising rates.


As Australia’s leading home loan lender, emoney Home Loans understands the significance of rising interest rates on borrowers’ capacity. Through informed decision-making and adopting suitable strategies, potential homeowners can navigate these challenges and find the right home loan solution that suits their financial needs and goals.

Disclaimer: Please note that the information provided in this article is for informational purposes only and should not be considered as financial advice. Every individual’s financial circumstances are unique, and it’s crucial to seek personalised advice from professionals before making any investment decisions.

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