How to Prepare for a Possible May 2026 Rate Hike

The RBA's February rate hike to 3.85% may not be the last. NAB, CBA, and Goldman Sachs have all flagged the possibility of another 0.25% increase in May, which would take the cash rate to 4.10% - the highest since 2012. The March quarter CPI data (released late April) will be the deciding factor. Rather than waiting to find out, here's how to prepare your mortgage now.

Who's Predicting What?

The big four banks are split on the outlook, with market pricing reflecting growing uncertainty:

What's Driving the Risk of Another Hike?

The key factor is inflation. ABS data shows headline inflation rose to 3.8% in the year to December 2025, up from 3.4% in November. Underlying trimmed mean inflation came in at 3.4% over the year - well above the RBA's 2-3% target band.

The broad-based nature of the inflation pickup is particularly concerning. Housing costs (construction and rents), insurance, and food prices are all running hot. These categories tend to be "sticky" - they don't come down quickly even when other prices ease.

What Another Hike Would Cost You

If the cash rate rises to 4.10%, most lenders would pass on the full 0.25% increase. Here's the cumulative impact since before the February hike:

6 Strategies to Prepare Now

1. Stress-Test Your Budget at 4.10%

Don't wait for May to find out if you can afford higher repayments. Calculate what your repayments would be with the cash rate at 4.10% (roughly 0.50% above where it was in January). As Canstar's Sally Tindall advises: "Prepare your budget as if we're going to see more than one rate hike."

Use our mortgage calculator to run the numbers for your specific loan.

2. Refinance Before Rates Rise Again

If you haven't reviewed your home loan in the past 12 months, now is the time. The gap between the highest and lowest variable rates on the market is nearly 1% - that's a potential saving of $300-500 per month on an average Sydney mortgage.

3. Consider Locking in a Fixed Rate

If you believe rates will rise further, fixing part or all of your loan provides certainty. Current options:

• 1-year fixed: From ~5.58% (ING with package)
• 2-year fixed: From ~5.49% (competitive lenders)
• 3-year fixed: From ~5.59%

Be aware that lenders are already pricing in the possibility of further hikes - fixed rate increases of 0.35% were seen from ANZ in February alone. The window for competitive fixed rates is narrowing.

4. Build Up Your Offset Account

Every dollar in your offset account reduces the interest you pay. If you have a variable loan with an offset facility, prioritise building this balance over the next 3 months:

• Direct your salary into your offset account
• Move any savings sitting in separate accounts into the offset
• Delay large non-essential purchases until after the May decision

$20,000 in an offset on a $700,000 loan at 6.44% saves roughly $1,288 per year in interest.

5. Cut Discretionary Spending Now

Build a financial buffer over the next 3 months by reviewing:

• Subscriptions: The average household pays $150-200/month across streaming, gym, apps - audit and cancel what you don't use
• Insurance: Shop around for home, car, and health insurance - switching can save $500-1,000/year
• Energy: Compare electricity and gas providers through government comparison sites
• Groceries: Meal planning and brand switching can save $50-100/week

6. Don't Panic - Have a Plan

A May hike is possible, not certain. ANZ and Westpac still expect rates to hold steady. Even if rates do rise, the 3% serviceability buffer means most borrowers were assessed at much higher rates than they're currently paying.

The important thing is to have a plan. Know your numbers, understand your options, and act before you need to - not after.

What If Rates Don't Rise?

Even if the RBA holds in May, every strategy above still benefits you:

• Refinancing saves money regardless of rate movements
• A larger offset balance reduces interest every day
• A bigger financial buffer provides peace of mind
• Reduced spending improves your overall financial position

There is no downside to being prepared.