The RBA has delivered its third consecutive rate hike, increasing the cash rate by 0.25 percentage points to 4.35%, effectively unwinding all of last year’s cuts.
In its statement, the RBA said inflation is likely to rise further on the back of “second-round” impact on goods and services, in addition to Australia’s existing home-grown inflation woes. This led to an eight-to-one majority decision by the Board in favour of lifting the cash rate.
Canstar analysis shows today’s increase will add around $91 to the monthly repayments of a $600,000 mortgage with 25 years remaining. Across all three hikes, it totals an extra $272 a month.
If the cash rate remains steady for the next 12 months, that’s an extra $3,265 over the next year in mortgage repayments, compared to if there had been no hikes in 2026.
Impact of a | |||
|---|---|---|---|
Debt | Hike | Cumulative | Total extra |
$600,000 | +$91 | +$272 | $3,265 |
$800,000 | +$122 | +$363 | $4,353 |
$1 million | +$152 | +$453 | $5,441 |
Source: Canstar. Notes: based on an owner-occupier paying principal & interest with 25 years in Feb 2026 at the RBA avg variable rate. Calcs assume banks pass on RBA changes the month after. Cost is based on min monthly repayments, not interest, and assumes the cash rate remains on hold at 4.35%. Does not factor in fees.
What will a competitive rate now look like?
Once the banks pass on this latest hike, Canstar estimates:
- 6.26% will be the average owner-occupier variable rate, however, someone who hasn’t refinanced in the last five years is likely to be on a rate above 7.00%.
- 5.99% or less will be a competitive owner-occupier variable rate, on offer from an estimated 40+ lenders.
- 5.75% is likely to be one of the lowest variable rates.
How much relief could refinancing bring?
Canstar research shows an owner-occupier who took out a new mortgage five years ago and hasn’t renegotiated their loan since, will land on a variable rate of 7.01% after this hike gets passed on.
By switching to a highly competitive rate of 5.99%, a borrower with a $600,000 loan could potentially save over $11,000 in the next two years, even when factoring in $1,150 in switch costs.
Potential impact | |||
|---|---|---|---|
| Rate | Cost - | Difference |
Do | 7.01% | $82,875 | N/A |
Refinance | 5.99% | $71,790 | -$11,085 |
Source: Canstar. Notes: calculations are estimates based on an owner occupier who took out an average variable rate mortgage 5 years ago and has not renegotiated since. The person now has $600k debt and 25 years remaining. Savings include interest and switch costs of $1,150 but not ongoing fees or extra repayments.
Borrowers at risk of getting stuck in mortgage prison as rates rise
While switching lenders is a key way to cut costs, higher rates and sliding property prices in areas such as Sydney and Melbourne are likely to put some borrowers in mortgage prison.
That’s because borrowers typically need to own at least 20% of their home at current values in order to refinance, or face paying lenders mortgage insurance.
The other way borrowers can land in mortgage prison is if they can’t pass their new bank’s serviceability assessment, which stress tests their application with a 3 percentage-point buffer. That said, many banks will drop the buffer to just 1 per cent for refinancers.
What should borrowers do if they can’t meet their repayments?
Borrowers under pressure should contact their lender early to discuss support options. These may include:
- Switching to interest-only temporarily.
- Making reduced payments for a set period of time.
- Extending the loan term.
While these options can ease short-term pressure, they often increase long-term costs, so getting independent financial advice is essential.
For example, switching to interest-only on a $600,000 loan with 25 years remaining could cut repayments by $407 a month, but add up to $30,300 in extra interest over the life of the loan.
Extending the loan term is likely to be even more costly, by adding five years, a borrower could save $264 in monthly repayments, but add about $142,837 in interest.
Impact of | ||
|---|---|---|
Change to | Extra cost | |
Switch to | -$407 | +$30,300 |
Extend loan | -$264 | +$142,837 |
Source: Canstar.com.au. Notes: based on an owner-occupier paying principal and interest on the average P&I rate of 6.26%, and an interest-only rate of 7.11% (Canstar estimates of RBA data). Assumes the cash rate remains on hold at 4.35% thereafter, as per CBA’s cash rate forecast. Does not factor in extra repayments.
Hit the phones and call your bank
Canstar’s Data Insights Director, Sally Tindall, says, “It’s a return to Groundhog Day for borrowers across the country who are now being asked to hand over all three cash rate cuts from 2025.”
“An extra $91 a month on a $600,000 mortgage might not sound like a budget-breaker in isolation, but stack three hikes together and that’s suddenly an extra $272, not just as a one off, but every single month for the foreseeable future.
“If the cash rate remains steady from here on in, households could end up forking out an additional $3,300 in repayments in the next 12 months, compared to if there had been no hikes in 2026. That’s effectively like paying nearly a whole extra month in a year.
“Borrowers who strategically kept their payments the same following each of the cash rate cuts last year are now back on notice, because their repayment buffer just went up in smoke.
“Sit down tonight, before banks start moving rates and do a sense check to see if you’re paying too much. If you are, you can haggle with your current lender, but know that the sharpest rates are typically reserved for those that make a switch.
“If you can’t clear the higher amount being asked of you, you probably won’t be able to refinance your way out of the issue, but don’t put your head in the sand.
“Call your bank and tell them this new higher amount is a stretch too far, before you miss a repayment.
“Hardship options can provide breathing room, but they’re not a free pass – they often come with a longer-term cost that borrowers need to weigh up carefully.”
