What the RBA's third rate rise in 2026 could cost you each month
The Reserve Bank of Australia is widely expected to raise the official cash rate again at its May 2026 meeting. If the move goes ahead, it will be the third consecutive rate increase in 2026, following hikes in both February and March. Financial markets are currently pricing in about a two-in-three chance of a rise. The catalyst is rising inflation, driven in large part by fuel prices that have surged to their highest level since 2023. For households carrying a home loan, an RBA rate hike in May 2026 would translate directly into higher repayments, often within weeks.
What's driving it
Fuel costs have been the main trigger. As global oil prices spiked, petrol and energy prices fed through into broader inflation data, pushing Australia’s annual inflation rate to a multi-year high. The RBA is required to keep inflation within its 2-3% target band. When inflation runs hot, the board’s primary tool is to raise the official cash rate, making borrowing more expensive. That slows consumer spending, reduces demand, and over time takes heat out of prices.
For home loan borrowers, that process plays out through higher variable rates. Each time the RBA moves, lenders typically pass the increase on in full. With rising inflation and multiple rate hikes already delivered this year, the pressure on household budgets continues to build.
Your repayments
The numbers are worth knowing. The average new home loan in Australia currently sits at $736,000. On a typical variable rate of 5.7%, the monthly repayment on that loan is approximately $4,272. A standard 25 basis point increase adds around $117 per month to that figure. Over a full year, that is an extra $1,404 in repayments.
To see what a rate increase means for your own loan, use our loan repayment calculator to check your new monthly cost. Enter your current balance, rate, and loan term and you will get a clear picture of where you stand. Your lender will typically write to you with an updated repayment figure after any rate change.
RBA rate hikes 2026
Markets are pricing in at least two more rate increases before December 2026. Add those to the February and March hikes and you arrive at a total of four RBA rate moves in a single calendar year. That kind of tightening cycle has not been seen in Australia for some time. Each increase stacks on top of the last, so the total impact on repayments is cumulative.
If you took out your loan at the start of 2026, you may already be paying significantly more than when you first settled. Borrowers weighing up timing decisions should think carefully. If you are wondering whether to buy property now or wait while rates are rising, the answer depends on your financial position and long-term goals rather than trying to time the market perfectly.
Borrowing capacity
Rising rates also compress what you can borrow. Lenders assess your repayment capacity at the actual rate plus a serviceability buffer, typically 3% above the loan rate. As the base rate rises, the test rate rises with it, meaning the same income supports a smaller loan.
If you received pre-approval earlier in 2026, that figure may no longer reflect what a lender will offer today. Your borrowing power has likely declined with each rate move this year. Before making an offer on a property, get updated pre-approval from your broker to confirm the numbers still work for your target price.
What to do now
There are several sensible steps to take as rates move higher. First, find out your exact rate after the hike. Contact your lender or check your online portal to confirm what your new variable rate will be. Second, run your budget with the updated repayment figure. An extra $117 a month is manageable for some households and tight for others, depending on your income and expenses.
Third, review whether a fixed rate makes sense for your situation. Fixing locks in certainty over your repayments for a set period, which can be useful when rates are trending up. The trade-off is that fixed rates already factor in market expectations, and you could miss out on savings if the RBA reverses course later. A mortgage broker can compare fixed and variable options from a wide range of lenders and help you find the most competitive rate for your circumstances.
Common questions
Q: If the RBA raises rates in May 2026, when will my repayments change?
Most lenders pass on rate changes within a few weeks of the RBA announcement. Your bank will typically send you an updated repayment figure, which takes effect from your next billing cycle. Check your loan terms or call your lender directly if you need certainty on timing.
Q: How much would four rate hikes add to my repayments across 2026?
It depends on your loan balance and rate. As a rough guide, each 25 basis point increase adds around $60 per month for every $500,000 of loan balance. Four hikes would add around $240 per month on a $500,000 loan, or approximately $350 per month on a $736,000 loan. Use a loan repayment calculator to get a figure based on your specific balance and rate.
Q: Should I fix my home loan rate before the next RBA hike?
Fixing gives you certainty over repayments while rates are moving. But fixed rates already reflect what the market expects rates to do, so you are not necessarily getting ahead of the curve. The right answer depends on your situation, how long you plan to hold the loan, and your risk appetite. A mortgage broker can compare fixed and variable options across multiple lenders to help you decide.