What do interest rate rises in Australia
mean for home loans?
Navigate this article
Why the raise? | Current cash rate | Variable and fixed home loans | Effects on repayments |
Effects on property prices | When might rates fall? |
Interest rates remain top of mind for Australian homeowners and buyers – especially as everyday living costs stay high and many people are reassessing their finances.
In February 2026, the Reserve Bank of Australia (RBA) increased the cash rate by 0.25% to 3.85%. This followed a period where rates had been on hold and has renewed focus on how interest rate changes affect home loan repayments and household budgets.
While no one knows exactly what will happen next, many borrowers are once again adjusting to a higher interest rate environment. Understanding how interest rates work and what these changes may mean for your loan, can help you feel more prepared.
Why did the RBA raise interest rates?
The Reserve Bank of Australia (RBA) plays a key role in managing inflation and supporting economic conditions. Over time, it has indicated that an inflation rate of between 2% and 3% is consistent with its objectives1.
Recent data from the Australian Bureau of Statistics (ABS) shows inflation is still above that range:
- Headline inflation rose 3.8% in the year to December 2025.
- The RBA’s preferred measure of underlying inflation (the trimmed mean) increased to 3.4%.
Housing costs have played a big role. Over the year to December 2025:
- Housing prices rose 5.5%.
- Higher electricity prices and rents were key contributors.
With inflation remaining above the RBA’s target range, interest rates have been increased as part of the RBA’s monetary policy response.
What is the cash rate right now?
As of February 2026, the RBA cash rate is 3.85%.3
This increase followed earlier rate cuts in 2025, which had eased pressure for borrowers. However, stronger inflation data changed the outlook and led the RBA to act.
Where are variable and fixed home loan rates sitting right now?
Home loan rates vary depending on the lender, loan type and your personal circumstances. That said, market averages give a general guide.
According to Canstar data from January 2026:
Some lenders increased fixed rates even before the February RBA decision, signalling expectations of a higher-rate environment.
What does this mean for variable and fixed home loan rates?
In simple terms, variable and fixed rate loans behave differently over time.
- Variable rates can go up or down. Your repayments may change when interest rates move.
- Fixed rates lock in your interest rate for a set period, giving repayment certainty - but often at a higher cost the longer you fix.
The right choice depends on your situation. Things to consider include:
- How comfortable you are with repayment changes
- How long you plan to keep the loan
- How much certainty you want
Speaking to your lender or a mortgage broker can help you understand the features of different loan types and which options may be available to you.
How do rate rises affect home loan repayments?
When the RBA raises the cash rate, lenders usually pass this on – especially for variable rate loans.
Based on Canstar estimates, a 0.25% rate rise could increase monthly repayments by approximately4. These examples are illustrative only. Actual repayment changes may vary depending on your loan and lender:
- $90 on a $600,000 loan
- $112 on a $750,000 loan
- $150 on a $1 million loan
For larger loans, even small rate changes can have a noticeable impact on your cash flow, which is why it’s important to stay informed and understand your options early.
What happens to property prices when interest rates rise?
Higher interest rates can reduce how much people can borrow, which may slow buyer demand and price growth.
However, housing supply remains tight in many parts of Australia5. In 2025:
As a result, higher rates may slow price growth rather than cause widespread price falls, with outcomes differing by location and market conditions.
When might interest rates go down?
That’s the big question! Unfortunately, there’s no clear answer yet.
Some economists have suggested that the RBA will pause after the February 2026 increase and see how higher rates affect the economy. Others believe further rises are still possible if inflation doesn’t ease.
What does seem likely is that a return to the very low interest rates seen during the pandemic is unlikely in the near term.
The bottom line. We’re here to help.
Rising interest rates can be challenging, especially if your repayments are already higher. But higher rates don’t automatically mean home ownership is out of reach.
Understanding your loan, reviewing your interest rate regularly and knowing your options – such as refinancing or changing your loan structure – may help some borrowers stay in control.
If you’re struggling to keep up with repayments, it’s important to contact your lender early. A hardship arrangement may help by changing how much or how often you repay and could prevent missed payments from affecting your credit report.
You can get in touch with us on 1800 185 914 or visit our financial support hub.
Sources:
1 Reserve bank of Australia – Australia’s Inflation Target
2 Australian Bureau of Statistics – Consumer Price Index, Australia, December 2025
3 Reserve Bank of Australia – Cash Rate Target Overview
4 Canstar – Get rate hike ready
5 CoreLogic – Hedonic Home Value Index
Contributor | Therese McGrath, Chief Financial Officer
Therese brings over 25 years of international experience in finance, strategy, and operations. She joined Pepper Money in January 2018 as Chief Financial Officer. In this role, she provides the leadership and financial and operational management necessary to ensure Pepper Money achieves its strategic goals and objectives. Read more.
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