Mortgage Stress in 2026: How to Cope After the Rate Hike

With the RBA raising the cash rate to 3.85% in February 2026, mortgage stress has reached concerning levels across Australia. Reports indicate that around 1.29 million Australians - roughly 25% of all mortgage holders - are now experiencing difficulty meeting their repayments. If you're feeling the squeeze, you're not alone, and there are practical steps you can take right now.

How Much Have Repayments Increased?

The February 2026 rate hike adds to what has been a challenging period for borrowers. Here's how monthly repayments have changed:

Are You in Mortgage Stress?

Mortgage stress is generally defined as spending more than 30% of your gross household income on mortgage repayments. But the real signs go beyond just the numbers:

• You're dipping into savings regularly to cover repayments
• You're using credit cards for everyday expenses you used to pay with cash
• You've cut back significantly on essentials like groceries or healthcare
• You're missing or delaying other bill payments to prioritise the mortgage
• You feel constant anxiety about your financial situation
• You've already missed a mortgage repayment or are close to missing one

7 Practical Strategies to Reduce Mortgage Stress

1. Get a Home Loan Health Check (Refinance)

This is the single biggest lever most borrowers have. With average variable rates around 6.44% and competitive rates as low as 5.49%, switching lenders could save you hundreds per month.

2. Call Your Current Lender and Negotiate

Before refinancing, try calling your current lender's retention team. Banks know it's cheaper to keep you than lose you. Ask for:

• A rate discount to match competitive offers
• Waiving of annual package fees
• A review of your loan structure

Many borrowers get 0.2-0.5% off their rate just by calling. On a $600,000 loan, that's $75-$185 per month.

3. Switch to Interest-Only Temporarily

If cash flow is extremely tight, switching to interest-only repayments for 1-2 years can provide significant relief. On a $600,000 loan at 6.44%, this reduces repayments from $3,810 to $3,220 - a saving of $590 per month.

4. Extend Your Loan Term

If you've been paying off your loan for several years, you may be able to extend back to a full 30-year term. This spreads repayments over a longer period, reducing monthly costs. It costs more in total interest, but can provide meaningful short-term relief.

5. Consolidate High-Interest Debts

If you're juggling a mortgage plus credit card debt (18-20% interest) and personal loans (8-12%), consolidating everything into your mortgage (5.5-6.5%) can dramatically reduce total monthly payments.

6. Apply for Hardship Assistance

If you're genuinely unable to make repayments, all Australian lenders are required to have hardship programs. Options may include:

• Repayment pause: Temporary suspension of repayments (usually 3-6 months)
• Reduced repayments: Lower amounts for a set period
• Loan restructure: Changing the terms to make repayments more affordable
• Fee waivers: Removing charges during the hardship period

Applying for hardship does not automatically affect your credit score. Missing payments without contacting your lender does.

7. Review Your Budget and Cut Non-Essentials

While this won't solve a structural affordability problem, every dollar counts when you're under pressure:

• Review subscriptions (streaming, gym, apps) - the average Australian household spends $150-200/month on subscriptions
• Shop around for insurance (home, car, health) - switching can save $500-1,000 per year
• Reduce energy costs - switch providers or negotiate a better deal
• Meal planning to reduce grocery waste and takeaway spending

When to Seek Professional Help

Don't wait until you've missed multiple payments. Seek help early if:

• You've missed or expect to miss a mortgage payment
• Your financial stress is affecting your health or relationships
• You're unsure which option is best for your situation

Free Resources

• National Debt Helpline: 1800 007 007 (free financial counselling)
• MoneySmart: ASIC's free financial guidance website
• Your mortgage broker: We can assess your situation and find the best solution at no cost to you

Could Rates Come Down in 2026?

There's mixed news on the outlook. Some economists predict the RBA could begin easing rates in the second half of 2026 if inflation moderates, potentially bringing the cash rate back to 3.35% by late 2026. However, NAB forecasts a second hike to 4.10% in May. The uncertainty makes it important to take action now rather than waiting for rates to change.