The Reserve Bank of Australia (RBA) has made its first interest rate increase in over two years, lifting the official cash rate by 25 basis points to 3.85%. This move came at the RBA’s first monetary policy meeting of 2026 and marks a clear shift in direction after a series of rate cuts in 2025.
Why the RBA Increased Rates
The RBA’s decision was driven by inflationary pressures that have returned more strongly than many forecasted. Inflation in Australia rose to 3.8% in December 2025, above the RBA’s 2–3% target band, prompting the central bank to act to slow price growth.
In simple terms, when inflation stays higher than expected — particularly across rent, goods, and services — the RBA raises rates to cool spending and ease inflation pressures. This is all part of its broader mandate to keep inflation in check and support sustainable economic growth.
What This Means for Your Mortgage
If you’re on a variable rate home loan, you’re likely to see an increase in your monthly repayments as lenders pass on higher costs. According to Mortgage Choice calculations:
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A $500,000 loan could cost around $80 more per month
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A $750,000 loan could rise by around $120 per month
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A $1,000,000 loan might increase by roughly $160 per month
These figures assume lenders fully pass on the 0.25% cash rate rise.
Lenders have also been adjusting fixed rates ahead of the RBA move — with some fixed products rising significantly before the official rate change as banks price in future rate risk.
What Borrowers Should Do Next
Here are practical steps to navigate this evolving rate environment:
🔹 Review Your Loan Structure
Understanding whether you’re better suited to a variable, fixed, or split loan is more important now. Every borrower’s situation is different — and a broker can help tailor the right mix.
🔹 Keep an Eye on Your Budget
Even small increases in rate can affect household cash flow. Updating your budget or repayment plan can help stay ahead of changes.
🔹 Compare Lenders and Products
Different lenders respond differently to RBA moves. Some may pass through bigger changes; others may offer competitive products to retain customers.
🔹 Plan for the Future
Markets are now pricing in the possibility of more rate changes later this year if inflation remains stubborn. Aligning your mortgage strategy with your goals and risk tolerance is key.
📞 Unsure how this affects your home loan? It’s a great time for a loan health check — let’s review your options together. Contact me today!