Bad news for mortgage holders around the country: the Reserve Bank of Australia (RBA) today raised the cash rate by 25 basis points to 3.85%. Today we’ll look at why it did so, and how this rate hike could impact your monthly mortgage repayments.
Well, those three rate cuts in 2025 were nice while they lasted!
But recent ABS inflation data (3.8% in the year to December 2025) has the RBA concerned enough to start 2026 with a rate rise in an attempt to beat inflation back down to the 2-3% target range.
The RBA’s Monetary Policy Board said in a statement that while inflation had fallen substantially since its peak in 2022, it had picked up again in the second half of 2025.
“While part of the pick-up in inflation is assessed to reflect temporary factors, it is evident that private demand is growing more quickly than expected, capacity pressures are greater than previously assessed and labour market conditions are a little tight,” the Board said of its unanimous decision.
“The Board judged that inflation is likely to remain above target for some time and it was appropriate to increase the cash rate target.”
How could this affect your minimum monthly mortgage repayments?
Unless you’re on a fixed-rate mortgage, your bank will likely soon follow the RBA’s lead and increase the interest rate on your variable home loan.
For an owner-occupier with a 25-year loan of $500,000 paying principal and interest, this month’s 25 basis point rate hike means your monthly repayments could increase by about $77 a month.
That could add about $924 a year to your household budget.
If you have a $750,000 loan, your minimum monthly mortgage repayments will likely increase by about $115 a month – or $1380 per year.
Meanwhile, a $1 million loan could increase by about $154 a month – or $1848 a year.
This all assumes that your lender automatically passes on the full 25 basis point hike to your home loan.
Another thing to keep in mind is that when interest rates came down from the recent cycle peak of 4.35% throughout 2025, many banks around the country kept borrowers on the same monthly repayment amount – meaning they paid more off the principal of their home loan each month rather than the interest.
If this is the case for you, your monthly repayment amount (very likely) won’t increase with this latest rate hike – it’s just that more of your repayment (0.25%) will go towards the interest on your loan, rather than the principal.
To find out what your lender is doing with your loan, get in touch with us in a few days once the dust has settled and the banks have announced their next moves.
Feeling the strain of your mortgage? Let’s talk
Ok, so the RBA has lifted the cash rate – it can be a tough pill to swallow for families on tight budgets. But there are still some steps you could potentially take to help offset this hike.
If it’s been a while since your last home loan review, now could be a good time to check in. You might be able to improve your situation – and we’re here to help you explore your options.
This could include renegotiating with your current lender, refinancing to another lender, or debt consolidation.
Every household is unique, and we’re committed to helping you find a solution that fits your needs.
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