The "Red Zone": Is Your Mortgage Buffer Evaporating?

New research reveals 70% of Australian mortgage holders are draining their offset accounts without realising it.

Are you one of them?

Your monthly repayment hasn't moved. Your lifestyle feels normal. But according to new research, thousands of Australian mortgage holders are unknowingly funding their own financial risk one offset dollar at a time.

If that sounds alarming, it should. Because the danger isn't a missed payment. It is silent.

A February 2026 report from the e61 Institute titled "Household Liquidity and the Monetary Policy Lag" reveals a striking paradox. Despite the RBA raising the cash rate to 3.85% on February 3, 2026, consumer spending has barely slowed.

The explanation isn't that Australians are wealthy enough to absorb the increases. It is that they are drawing down on the buffers they built during the low-rate years. Offset accounts, redraw facilities, and personal savings are being used to maintain a standard of living that the current economy no longer supports.

Roughly 70% of increased debt servicing costs are currently being funded by pre-existing liquidity buffers, not reduced spending. This means most people aren't beating the rate cycle. They are paying for it in slow motion.

Here is something most lenders won't tell you proactively. When the RBA raises rates, many Australian lenders do not immediately increase your monthly direct debit. Instead, they quietly increase the interest portion of your existing payment.

Your repayment looks the same. But more of it is now servicing interest, and less is reducing your principal. This is known as repayment inertia, and it has two consequences most homeowners haven't calculated:

This is the "Red Zone." It isn't a missed payment or a default notice. It is a slow erosion of the financial cushion that stands between you and real stress.

With a May rate hike currently priced at an 85% probability by market analysts (following hawkish RBA minutes released on February 17), now is the time to stress-test your position.

Don't look at the dollar figure in your offset. Look at the time.

Months of Cover = Offset Balance ÷ Monthly Repayment

If the result is less than 3, you are in the Red Zone. If it is less than 1.5 months, you need to act this week.

If your buffer is shrinking, pause voluntary extra repayments into your loan principal. Instead, park that cash in your offset account. The interest savings are mathematically identical, but the offset gives you access to that money if you need it. In a rate-hike environment, liquidity is your best protection.

The e61 data shows we are spending through the hikes. A 1% reduction in non-essential household expenses (roughly $80 to $120 per month for the average Australian mortgage holder) can extend your buffer by several months over the course of a year. It is a small number with a significant runway.

Understanding your runway is the first step to financial clarity. Run a stress test against two further rate hikes, not just one. If your offset buffer falls below 3 months of cover under that scenario, it is worth reviewing whether your current loan product is still the right fit.

There are Basic Variable loans in the current market offering materially lower rates than standard variable products. Switching could preserve thousands in offset cash annually without changing your repayment behaviour at all.