RBA Interest Rate Rise February 2026: What It Means for Homeowners and First Home Buyers

On 3 February 2026, the Reserve Bank of Australia raised the cash rate by 25 basis points to 3.85% — the first rate hike since November 2023. If you're a homeowner watching your repayments climb again, or a first home buyer wondering what this means for your plans, here's what you need to know — with real numbers, not headlines.

This article breaks down what the rate rise actually means in dollar terms for existing mortgage holders, how it changes the picture for first-time buyers trying to enter the market, and what you can do about it either way.

What Happened and Why the RBA Raised Rates

After delivering three rate cuts during 2025 (in February, May, and August), the RBA reversed course. Inflation data released by the Australian Bureau of Statistics showed headline inflation rising to 3.8% in the year to December 2025, up from 3.4% in November. Underlying trimmed mean inflation hit 3.4% over the year — well above the RBA's 2–3% target band.

Private demand also strengthened more than the RBA expected, driven by household spending and investment. Housing market activity picked up alongside this. Labour market conditions remain tight. In short: the economy is running hotter than the RBA is comfortable with.

The RBA now projects inflation could reach around 4.2% by mid-2026

Governor Michele Bullock has signalled the central bank stands ready to raise rates again if inflation proves persistent. Inflation may not return to the target band until mid-2027.

How This Affects Existing Homeowners

If you have a variable rate home loan, all four major banks have confirmed they're passing on the full 0.25% increase. Your repayments are going up. Here's what that looks like in practice.

The Extra Cost by Loan Size

Loan Balance	Extra Per Month	Extra Per Year
$400,000	~$60	~$720
$500,000	~$78	~$936
$600,000	~$93	~$1,116
$693,802 (avg. loan)	~$109	~$1,313
$800,000	~$125	~$1,500
$1,000,000	~$155	~$1,860

These figures assume a 30-year principal and interest loan with variable rates moving from roughly 5.20% to 5.45%. Your exact numbers will depend on your lender, loan structure, and remaining term.

See Exactly What Your Repayments Look Like Now

Use our mortgage calculator to plug in your current loan balance and new interest rate. See your updated monthly, fortnightly, or weekly repayments instantly — and explore how extra repayments could offset the rate rise.

Calculate Your Repayments →

Example: Sarah and Ben in Melbourne

Sarah and Ben bought a three-bedroom house in Melbourne's outer suburbs in 2023 for $780,000. They have a $650,000 variable rate mortgage with 27 years remaining.

Previous rate: 5.24%
New rate: 5.49%
Previous monthly repayment: $3,752
New monthly repayment: $3,852
Extra per month: $100 | Extra per year: $1,200

That's an additional $1,200 a year on top of an already tight household budget. For families already stretched by rising grocery bills, insurance, and utilities, this adds real pressure.

The Cumulative Weight of Rate Changes

This 0.25% rise doesn't exist in isolation. While the three cuts in 2025 brought some relief, the cash rate is still well above the record lows borrowers enjoyed in 2021–2022. For many homeowners who took out loans when rates were under 2%, the total increase in repayments since 2022 has been substantial.

35% of Australian homeowners were already struggling to pay their mortgage at the start of 2026.

For many borrowers, the 2025 rate cuts provided a brief window of relief. This hike takes some of that back.

What Existing Homeowners Should Consider

If you're feeling the pressure, there are practical steps worth exploring:

Call your lender and negotiate. Lenders retain customers more cheaply than acquiring new ones. Ask for a rate review — many borrowers save 0.1–0.3% just by asking, which can offset part of this rise.
Check if refinancing makes sense. If you haven't reviewed your loan in the past 12–18 months, there may be better deals available. Just make sure to factor in any discharge and switching costs.
Review your budget with the new numbers. Use a mortgage repayment calculator to see exactly what your new repayments are, rather than relying on rough estimates.
Consider switching to fortnightly repayments. Paying fortnightly instead of monthly means you make 26 half-payments per year (equivalent to 13 monthly payments instead of 12). Over a 30-year loan, this can shave years off your mortgage.
Don't panic about fixed rates. Fixing can provide certainty, but with the RBA flagging possible further hikes, fixed rates have already been repriced higher. Locking in now doesn't guarantee savings.

How This Rate Rise Affects First Home Buyers

If you're trying to break into the property market, this rate rise hits you in two ways: your borrowing power drops, and your repayments on any loan you take out will be higher. But it's not all bad news.

Your Borrowing Power Just Shrank

When rates go up, banks can lend you less. This is because lenders assess your ability to repay at the actual rate plus a 3% buffer (as required by APRA). When the actual rate rises by 0.25%, the assessment rate rises too — meaning the bank calculates your repayments as if your rate were around 8.45% instead of 8.20%.

In practical terms, each 0.25% increase reduces borrowing capacity by roughly $11,000 for a borrower on average earnings. That might not sound like much, but it narrows your options — particularly in competitive markets.

Example: How a 0.25% Rise Affects Borrowing Power

Before the rate rise

$542,000

Max borrowing (single income $95K, low expenses)

After the rate rise

$531,000

Max borrowing (same borrower, new rate)

That's $11,000 less purchasing power — enough to change which suburbs or property types are within reach.

Check Your Updated Borrowing Power

Interest rates directly affect how much you can borrow. Use our borrowing power calculator to see where you stand with the new rates — and explore how adjusting expenses or paying off debts could improve your position.

Calculate Your Borrowing Power →

Example: Matilda in Brisbane

Matilda is a 28-year-old nurse in Brisbane earning $92,000. She was pre-approved for a $520,000 home loan and has been looking at one-bedroom units in inner suburbs.

Previous borrowing capacity: $520,000
Revised borrowing capacity: ~$509,000
Monthly repayment at old rate (5.20%): $2,860
Monthly repayment at new rate (5.45%): $2,940
Extra per month: ~$80 | Reduced capacity: ~$11,000

For Matilda, this means some units she had shortlisted may now be just out of reach — or she'll need to adjust her deposit strategy. But with median Brisbane unit prices around $560,000, she's still in the market.

The Silver Lining: Why Higher Rates Aren't All Bad for First-Time Buyers

It sounds counterintuitive, but rate rises can actually create opportunities for first home buyers. Here's why.

Potential Upsides

Less competition at auctions. Higher rates reduce borrowing power for everyone — not just you. Fewer buyers can stretch to the upper end of their range, which can cool price growth.
Price growth may slow. Higher rates have historically moderated property price increases. If prices plateau or dip in some areas, that benefits buyers who haven't yet purchased.
Investors pull back. Rate rises squeeze rental yields and investor returns, which can reduce investor competition — particularly for apartments and entry-level properties.
Forced sellers increase supply. Some over-leveraged owners may need to sell, adding stock to the market and creating more negotiating power for buyers.

The Challenges Remain

Lower borrowing capacity. You can borrow less, which limits property options or requires a larger deposit.
Higher repayments from day one. The loan you do take out costs more to service every month compared to a few weeks ago.
Property prices haven't fallen (yet). The national median is now $912,465. Sydney sits at $1.29 million. A single 0.25% hike doesn't change that overnight.
Saving a deposit is still hard. While rates on savings accounts may edge up slightly, the deposit gap remains the biggest barrier for most first-time buyers.

Government Schemes That Still Help in 2026

Despite the rate rise, several government schemes remain available to help first home buyers enter the market. These haven't changed because of the rate decision.

5% Deposit Scheme (Home Guarantee Scheme)

Buy with just 5% deposit and avoid Lenders Mortgage Insurance (LMI). Since October 2025, the scheme is available to anyone who hasn't owned property in the past 10 years — not just traditional first home buyers. This saves $15,000–$35,000 in LMI costs.

First Home Super Saver Scheme (FHSS)

Make voluntary super contributions (up to $15,000/year, $50,000 total) and withdraw them for your deposit — taxed at just 30% instead of your marginal rate. This can boost your deposit savings by up to 30% compared to saving in a standard account.

State Stamp Duty Concessions

Most states offer stamp duty exemptions or concessions for first home buyers — saving anywhere from $10,000 to $30,000+ depending on your state and purchase price. Use our Stamp Duty Calculator to see exactly what you'd pay in your state.

For a full breakdown of every scheme and how to combine them, see our complete first home buyer guide.

Real Scenario: Buying a $650,000 Property Before vs. After the Rate Rise

Let's walk through what buying a $650,000 property looks like for a first home buyer with a 10% deposit, comparing the numbers before and after the February rate rise.

	Before (5.20%)	After (5.45%)
Purchase price	$650,000	$650,000
Deposit (10%)	$65,000	$65,000
Loan amount	$585,000	$585,000
Monthly repayment	$3,217	$3,307
Extra per month	—	+$90
Extra per year	—	+$1,080
Total interest over 30 years	$573,120	$605,520

That's $32,400 more in interest over the life of the loan from a single 0.25% rate movement. This is why even small rate changes matter — and why it's worth running the numbers on your specific situation rather than relying on general estimates.

What Should You Do Now?

If You're an Existing Homeowner

Know your new number. Don't guess what your repayments are — use a mortgage calculator to see the exact figure based on your balance and new rate.
Call your lender. Ask for a rate review. The worst they can say is no, and many borrowers discover they've been on uncompetitive rates without realising it.
Assess whether to fix, split, or stay variable. This depends on your risk tolerance and how you expect rates to move. If the RBA hikes again, variable borrowers will feel it first.
Look at your full budget. Sometimes the solution isn't the mortgage itself, but identifying $100–$200 in monthly expenses that no longer make sense.

If You're a First Home Buyer

Recalculate your borrowing power. Your pre-approval may need updating. Use a borrowing power calculator to get a realistic picture of what you can borrow at the new rates.
Don't wait for the "perfect" rate. Trying to time the market rarely works. If you can afford the repayments at today's rate and you're buying a property you'll hold long-term, the rate in year one matters less than the rate over the life of the loan.
Reduce expenses and debts where possible. Every dollar of debt you clear (credit cards, personal loans, BNPL) directly increases your borrowing capacity. Cancelling unused credit cards has an immediate effect.
Investigate all government schemes. The 5% Deposit Scheme, FHSS, and state-level concessions can save tens of thousands of dollars. Many first home buyers don't realise they can combine multiple schemes.
Consider broadening your search. If your borrowing power has dropped $11,000, look at suburbs one ring further out or consider apartments versus houses. Entry-level properties in less competitive areas often represent better value.

What Happens Next? The Rate Outlook for 2026

The next RBA cash rate decision is on 17 March 2026. The big four banks are split on what comes next:

ANZ, CBA, and Westpac expect rates to hold steady through 2026 — meaning 3.85% may be the peak.
NAB forecasts another 0.25% rise in May 2026, which would take the cash rate to 4.10%.

If NAB is right and another hike arrives in May, a borrower with a $600,000 loan would face roughly $180 in additional monthly costs compared to the start of the year. That's $2,160 per year.

The key takeaway

Plan around current rates, not hoped-for cuts. The RBA has made it clear that getting inflation back into the 2–3% band is the priority, and they won't hesitate to raise rates further if needed. Build a buffer into your budget.

Frequently Asked Questions

How much extra will I pay on my mortgage after the February 2026 rate rise?

On a typical $600,000 loan, expect roughly $90–$100 more per month ($1,080–$1,200 per year). The exact amount depends on your loan balance, remaining term, and current rate. Use our mortgage calculator to get your exact figure.

Does this rate rise affect fixed rate loans?

No. If you're on a fixed rate, your repayments won't change until your fixed period expires. However, new fixed rates being offered by lenders have already been repriced to reflect the RBA's hawkish stance.

Should I fix my rate now?

It depends on your risk tolerance. Fixing gives you certainty, but if rates don't rise further (as three of the big four banks expect), you may end up paying more on a fixed rate than a variable one. A split loan — part fixed, part variable — can be a middle ground.

How does the rate rise affect my borrowing power as a first home buyer?

A 0.25% rate increase reduces borrowing capacity by roughly $11,000 for a borrower on average earnings. This is because banks assess you at the actual rate plus a 3% buffer, so the higher the rate, the lower the amount they'll lend you.

Can I still buy with a 5% deposit?

Yes. The Australian Government's 5% Deposit Scheme (Home Guarantee Scheme) is still available and hasn't been affected by the rate change. It allows eligible buyers to purchase with just 5% deposit while avoiding Lenders Mortgage Insurance. See our first home buyer guide for full details.

Will house prices drop because of this rate rise?

Not necessarily from a single 0.25% hike. Property prices are driven by supply, demand, migration, and many other factors. However, higher rates do reduce borrowing capacity across the board, which tends to moderate price growth over time. Some analysts expect price growth to slow in 2026, but a national price drop from this hike alone is unlikely.

Disclaimer: This article is for general informational purposes only and does not constitute financial advice. The examples and figures used are illustrative and based on publicly available data at the time of writing. Interest rates, repayment amounts, and borrowing capacities will vary based on individual circumstances, lender policies, and market conditions. Always consult a qualified financial adviser or mortgage broker before making financial decisions. Use our free calculators as a starting point, not a substitute for professional advice.