RBA at 3.85%: how to plan your FY26 mortgage strategy

The cash rate sits at 3.85% with all four major banks tipping a further 25bp move on 5 May. Practical broker steps for homeowners and investors before the next move.

The Reserve Bank of Australia's cash rate is sitting at 3.85% heading into May, with all four major banks now forecasting a further 25 basis point rise at the 5 May meeting after March CPI ran hot at 4.6% annually. For Australian homeowners and investors, this is the third move borrowers have absorbed inside 12 months — and Property Update notes that the cumulative effect is finally biting on monthly budgets, holding costs, and borrowing power. The good news, as broker conversations consistently show, is that planning beats reacting. Most of the financial pressure from a rising-rate cycle can be managed with three or four small loan-structure decisions made early — well before any individual lender's pass-through hits your statement.

What another 25bp hike actually changes

On an owner-occupier variable loan of $650,000, a 25bp rise lifts your monthly repayment by roughly $100. Annualised, that's about $1,200. On a $850,000 loan it's closer to $135 a month. Most of that lands inside two billing cycles after the RBA decision because lenders pre-position pricing in the lead-up — they don't wait for the announcement to start moving.

For investors with one or two properties, the same arithmetic applies on the loan side, but the cash-flow squeeze can be worse. If a property happens to be vacant during a rate cycle (between tenants, mid-renovation), the holding cost hits a buffer that was sized for the previous rate environment. As Property Update points out, those buffers can disappear surprisingly quickly — within a single quarter in some cases — if rents lag the cost increase.

There is one quiet upside worth naming: cash sitting in offset accounts, savings, and term deposits earns more in this environment. For households with an emergency fund of three to four months of repayments stashed somewhere accessible, the math actually tilts slightly in your favour as rates rise — provided the loan is structured to use that cash efficiently.

Your three FY26 levers

Three decisions are usually worth making before another move lands:

1. **Review the loan, not just the lender.** Most variable-rate borrowers haven't had a rate review in 18 months or more. The product you signed up for at signup is rarely the best product the same lender is offering new customers today. A 5-minute call to your existing lender's retention team can typically claw back 20–40 basis points without any switch costs. Worth doing before any refinance application.

2. **Run a refinance-savings sanity check.** If your variable rate is sitting more than 50bp above the cheapest comparable rate in our [live index](/home-loans/cheapest), the math usually justifies a switch even after factoring in discharge fees and stamp duty on the new mortgage. Use our [refinance savings calculator](/calculators/refinance-savings) to see the monthly delta and break-even months on switch costs for your specific loan.

3. **Test serviceability at +1.00%.** Lenders are required to assess your borrowing capacity using a serviceability buffer above the actual rate (currently 3% over the offered rate). Run your own numbers at offered + 1.00% to make sure you've still got headroom if the cycle keeps moving. Our [borrowing power calculator](/calculators/borrowing-power) lets you model this in 60 seconds.

The investor-specific math

Property investors face an extra dimension: tax. Higher interest costs are deductible against rental income, so part of the rate-cycle impact is offset at marginal tax rates of 32.5–47%. That doesn't make rate hikes free, but it does change the after-tax break-even on whether to retain, refinance, or restructure a property.

Two specific structure questions worth raising with your accountant and broker this quarter:

- **Should I split the loan between variable and fixed?** Fixed rates have already priced in roughly 62 basis points of further tightening for the rest of 2026, so fixing now doesn't avoid the hike — it just locks in your rate at a price that already reflects it. The tradeoff is certainty over flexibility. - **Should I move from P&I to interest-only?** For investors actively building a portfolio, an IO term can free meaningful cash flow at a small rate premium. For investors with a single property and no near-term acquisition plans, the eventual P&I shock usually isn't worth it.

What you should do this week

Before the 5 May RBA decision lands at 14:30 AEST:

- Call your existing lender's retention team and ask for a rate review. - Run your loan through the [refinance savings calculator](/calculators/refinance-savings). - Check your offset balance — if you've got idle cash earning 0% in a transaction account, move it. - If you're an investor, book a 15-minute slot with your accountant to talk loan structure heading into FY26.

None of this requires dramatic action. As Michael Yardney's Property Update piece [What the RBA Rate Hike Means for Homeowners & Investors: FY26](https://propertyupdate.com.au/what-the-rba-rate-hike-means-for-homeowners-investors-fy26/) puts it, "It's rarely about making dramatic changes. It's usually just small adjustments that keep things manageable." That maps almost exactly to what we see in real refinance conversations — incremental moves, made early, beat heroic restructures done at the bottom of the buffer.