Major blow for Australian mortgage holders as the Reserve Bank raises rates: Here’s how much more YOU will be paying

Australian mortgage holders have been hit with higher repayments after the Reserve Bank lifted the cash rate on Tuesday, dealing a fresh blow to household budgets as it continues its fight against stubborn inflation.

The central bank raised the cash rate by 25 basis points to 3.85 per cent – the first increase since November 2023.

The decision pushes the RBA further out of step globally, with most major central banks now pausing or preparing to ease rates.

According to Canstar’s calculations, an owner-occupier with a $600,000 mortgage and 25 years remaining would see their minimum monthly repayments rise by $90, assuming banks pass it on to their variable customers.

Those with a $1 million loan would be paying $150 more a month on their mortgages.

REA Group senior economist Angus Moore said the Reserve Bank’s decision had been widely anticipated.

‘This comes in response to higher-than-expected inflation in the December quarter, and unemployment dropping down to 4.1 per cent,’ he said.

‘The RBA remains focused on inflation, and with underlying inflation above both the RBA’s target band and what it had forecast back in November, the argument for a rate cut to start the year was strong.’

Mr Moore said home prices were still expected to rise through 2026, supported by last year’s rate cuts and strong economic and housing fundamentals.

‘The unemployment rate remains very low, population growth is solid, and new housing supply remains relatively constrained,’ he said. 

‘However, higher interest rates this year are likely to slow the pace of price growth compared with last year.’

The upward pressure on home prices is unlikely to ease with new ABS figures showing the number of approved dwellings fell 14.9 per cent in December to 15,542.

Daniel Rossi, ABS head of construction statistics, said the drop was driven by a near 30 per cent fall in approvals for private dwellings like townhouses and apartments. 

‘New South Wales had the largest fall in December, down 5.5 per cent,’ he said.

‘South Australia recorded the largest rise, up 13.1 per cent, to the highest level since April 2023. 

‘Western Australia rose 0.4 per cent, to the highest level since July 2021.’  

If banks pass on this hike in full, mortgage holders with an average new home loan of $694,000 would see their monthly repayments increase by $109 to $4,025. 

Analysts at NAB, Citi, RBC Capital Markets, UBS and Barrenjoey Markets have also forecast a second increase this year. 

Mr Moore said how inflation evolves early in 2026 will be the driver for where interest rates go from here. 

‘At the moment, another hike is expected by mid-to-late 2026, but whether that happens will be dictated by how persistent inflation is,’ he said.  

Compare the Market’s Economic Director David Koch said the rate rise was off the back of last week’s inflation figures. 

‘Last week’s December quarter CPI result was a shocker. And it’s not just that headline figure – it’s the pace at which inflation is accelerating that really has them spooked,’ he said.

‘It was only a couple of months ago that some of the punters were talking about interest rate cuts this year. They’re certainly off the table.

‘Inflation has been running too hot for too long and it’s really important we get ahead.

‘The RBA is walking a tightrope right now. They’ve got to factor in the uncertainty we’re seeing overseas and how the Aussie dollar is faring before moving too quickly.’

Any increase in interest rates would have a direct and immediate impact on household budgets, particularly for borrowers with larger mortgages.

It comes as new data shows just over 25 per cent of Aussies surveyed in January listed mortgage or rental costs as their biggest budget pressure over the past 12 months.

ABS data released last week revealed the Consumer Price Index (CPI) rose 3.8 per cent in the 12 months to December, up from 3.4 per cent in November.

The RBA has been battling to keep Australia’s stubbornly high inflation rate between 2 and 3 per cent. 

The increase in official estimates of inflation led to the Reserve Bank’s decision to leave interest rates unchanged for its last three meetings in October, November and December 2025.