Should You Fix or Stay Variable? What Rising Interest Rates Mean for Your Mortgage
Interest rates have risen again, and many borrowers are still on outdated rates. See what's driving the increases and how to check if your home loan is still competitive.
Australian Interest Rates in 2026: Why the RBA Reversed Course, and What It Means for Your Mortgage
It's been a rollercoaster couple of years for Australian mortgage holders. In February 2025, the Reserve Bank of Australia (RBA) decided inflation was cooling enough to justify a 0.25% rate cut, the first sign of relief after a long tightening cycle. Two more cuts followed in May and August 2025, taking the cash rate down to 3.60%.
Twelve months on, all three cuts have been reversed. The RBA has delivered three consecutive 0.25% increases in 2026 (in February, March and May), pushing the cash rate straight back to 4.35%. For homeowners who locked in cheaper repayments last year, the return to 2025 levels has landed as an unwelcome surprise.
Why did the RBA cut rates, then take them straight back?
In hindsight, the RBA moved a little early. There was considerable political pressure on the Board in the lead-up to the May 2025 federal election to ease the cost-of-living squeeze, and inflation appeared to be heading in the right direction at the time.
The problem is that underlying inflation never actually settled inside the RBA's 2–3% target band. Trimmed mean inflation, the RBA's preferred measure of "underlying" price pressure, has climbed back to 3.6% in the most recent monthly data. A resilient economy, elevated state and federal government spending, and strong consumer demand pushed prices higher through late 2025, and that was before the Middle East conflict added fresh upward pressure on petrol prices.
Faced with inflation trending in the wrong direction, the RBA had little choice but to unwind its 2025 rate cuts and take the cash rate back to 4.35%.
Is 4.35% high enough this time?
That's the question on every economist's mind. The RBA held the cash rate steady at its July 2026 meeting, choosing to pause and assess the impact of the three earlier hikes before moving again. But a pause isn't necessarily the end of the story.
The next big data point is the June quarter Consumer Price Index (CPI), due for release on 29 July 2026. Most market economists expect at least one more rate rise this year, with some tipping a move as early as the RBA's 11 August meeting if inflation comes in hot. At one stage the market had priced in as many as three further increases, which triggered a sharp jump in fixed rates. More recently, softer employment figures and early signs that oil price rises aren't fully flowing through the supply chain have taken some heat out of those expectations. Still, nothing is settled until the 29 July numbers land.
What this means for your mortgage right now
For borrowers, the practical impact is straightforward: rates are meaningfully higher than they were a year ago, and where you sit within the current range can make a real difference to your repayments.
As things stand:
- Competitive owner-occupied, principal and interest loans are running in the range of 6.05% to 6.25%.
- Investment interest-only loans are sitting between 6.5% and 6.8%.
If your current loan is priced outside those bands, there's a good chance you're paying more than you need to — whether that's because your rate hasn't moved with the market, your loyalty margin has crept up, or your loan was set up under a different risk profile.
Should you fix, stay variable, or refinance?
With another cash rate move possible in August and the June quarter CPI result still to come, this is a sensible time to review rather than guess. A few things worth weighing up:
- If you're on an old variable rate, it's worth checking whether your bank has quietly let your rate drift above what new customers are being offered — lenders rarely reprice existing loans automatically.
- If you're considering fixing, remember fixed rates already have future rate expectations priced in, so a fixed rate today reflects the market's current guess about where the cash rate is headed, not a guaranteed saving.
- If you're an investor on interest-only, the gap between owner-occupied and investment pricing has widened, so it's worth confirming you're not paying an unnecessarily high margin.
Frequently asked questions
What is the RBA cash rate right now? As of July 2026, the RBA cash rate is 4.35%, following three 0.25% increases in February, March and May 2026 that fully reversed the cuts made throughout 2025.
When is the next RBA rate decision? The RBA's next scheduled meeting is 11 August 2026, shortly after the June quarter CPI data is released on 29 July 2026.
Will interest rates go up again in 2026? Most economists expect at least one further increase this year, though the timing depends heavily on the upcoming inflation result. Market pricing for further hikes has eased slightly on the back of softer employment data.
How do I know if my mortgage rate is competitive? As a rough guide, owner-occupied P&I loans are currently competitive in the 6.05–6.25% range, and investment interest-only loans in the 6.5–6.8% range. If you're outside these bands, it's worth getting a rate review.
Get a rate review
If your current home loan sits outside these ranges, or you're simply unsure how the recent rate moves affect your position, get in touch for a rate review. It costs nothing to check, and it could save you a meaningful amount over the life of your loan.
