The Reserve Bank of Australia surprised many observers in February 2026 by raising the cash rate by 25 basis points — just months after cutting rates three times in 2025. A second hike followed in March. The cash rate now sits at 4.35%, reversing much of the 2025 easing cycle. For Australian mortgage holders, this means higher repayments, tighter budgets, and renewed uncertainty about what comes next.
Late 2025: Three consecutive rate cuts bring cash rate to 3.60%
February 2026: RBA raises 25 basis points → 3.85%
March 2026: RBA raises 25 basis points → 4.10%
May 2026: Further hike to 4.35% (per available data)
Markets pricing: Up to 2 further hikes possible in 2026
The RBA's reversal reflects resurgent inflation driven partly by a global energy price shock and supply chain disruptions. The bank has signalled it will continue raising rates until inflation is sustainably back within the 2–3% target band.
The table below shows the approximate monthly repayment impact of the combined 0.75% increase from 3.60% to 4.35% for different loan sizes on a standard 25-year principal and interest loan:
$400,000 loan: +$190/month
$600,000 loan: +$285/month
$736,000 loan (national average): +$350/month
$1,000,000 loan: +$475/month
$1,500,000 loan: +$713/month
These figures assume variable rate loans where the rate change is passed on in full — which most major lenders do within 2–4 weeks of an RBA decision.
The 2025 rate cuts were premature in retrospect. When the RBA cut rates three times in late 2025, headline inflation appeared to be declining toward the 2–3% target. But two factors changed the picture rapidly:
The result: inflation in early 2026 remained stubbornly above target, forcing the RBA to tighten policy again even as affordability pressure on borrowers intensified.
Borrowers on fixed rate loans are insulated from rate hike impacts — until their fixed period expires. A significant number of Australian borrowers who fixed their rates in 2021–2022 at historically low rates of 2–3% are now rolling off onto variable rates of 5.50–6.50%. This "fixed rate cliff" creates sudden payment increases of $500–$1,200 per month for affected borrowers.
A borrower who fixed at 2.5% in 2021 on a $700,000 loan paid approximately $3,130/month. Rolling onto a variable rate of 6.0% in 2026, that repayment jumps to $4,495/month — an increase of $1,365 per month or $16,380 per year. If you are approaching expiry of a fixed rate period, model this scenario now.
The gap between the best available variable rates and loyalty rates at major banks can be 0.5–1.0%. On a $700,000 balance, that difference is $3,500–$7,000 per year in interest. Call your bank and ask for a rate review, or use a mortgage broker to compare the market.
If rates rise a further 0.50–1.0%, can your budget absorb it? Use Finrivo's Extra Repayment Calculator to see your position at different rate scenarios. Many lenders are required to assess serviceability at 3% above the loan rate — make sure you are comfortable to that level.
If further rate hikes materialise, fixing a portion of your loan (50–70%) provides protection on the majority of your debt while keeping flexibility on the remainder for extra repayments and offset access.
Every dollar in an offset account reduces the balance on which interest is charged. At 6%, $50,000 in an offset saves $3,000 per year in interest — tax free and immediately accessible.
Use Finrivo's free mortgage calculator to model your repayments at current rates or any future rate scenario.
Open Mortgage Calculator →