The Reserve Bank of Australia has lifted the cash rate target by 25 basis points to 4.35%, with the new target taking effect from 6 May 2026. For homeowners, that does not mean the answer is automatically to refinance, fix the rate, or make a rushed decision. It means your current loan deserves a careful review.
When rates move, the important question is not simply “can I find a cheaper rate?” It is “does my current loan still suit my cash flow, household budget, long-term goals and borrowing position?”
That is where a sensible loan review can help. It gives you a clearer picture before you react.
Start with your current lender before changing lenders
Before assuming you need to move banks, it is worth checking whether your existing lender can sharpen your current rate.
Loans that have been sitting with the same lender for several years can sometimes fall behind current market pricing. A borrower may still be on an older rate while the lender is advertising sharper offers to new customers. That does not mean every lender will move, but it is often the first place to start.
A good review should look at:
- Your current interest rate
- Your repayment amount
- Whether your lender has a better comparable product
- Your loan features, such as offset, redraw or fixed-rate components
- Any fees, discharge costs or application costs if you were to change lenders
- The remaining loan term
ASIC’s Moneysmart also recommends reviewing your loan regularly, comparing rates and fees, asking your lender for a better deal, and checking whether your current loan features still suit your needs. (Moneysmart)
Revisit the household budget
A rate rise does not only affect the loan repayment. It often lands at the same time as higher insurance premiums, council rates, groceries, utilities, car expenses and business costs.
That is why the household budget should be reviewed before making a lending decision.
For some households, the issue is not the loan product itself. It may be that the overall budget has become tighter and needs a more structured plan. For others, there may be a genuine opportunity to negotiate a better rate, consolidate debts, or adjust the loan structure.
The key is not to guess.
A practical budget review should include:
- Mortgage repayments at the current rate
- Regular living expenses
- Annual costs such as rates, insurance and registrations
- Credit card, personal loan or car loan repayments
- Childcare, school, health and family costs
- Tax or ATO commitments, particularly for self-employed borrowers
- Emergency savings or available cash buffer
When cash flow is tight, it is better to deal with it early. Waiting until repayments are missed or short-term credit is being used to plug gaps usually reduces the options available.
Be careful chasing the lowest headline rate
A lower advertised rate can be attractive, but the cheapest-looking option is not always the best outcome.
Some offers are built around honeymoon rates, cashback incentives or short-term discounts. These may still be worthwhile in the right circumstances, but they need to be weighed against the full cost and the likely position after the incentive period ends.
Before refinancing, check:
- Application, valuation, settlement and discharge fees
- Package or annual fees
- Break costs if any part of the loan is fixed
- Whether the lower rate applies only for an introductory period
- Whether the loan term is being reset
- Whether the new loan still gives you the features you use
- Whether the saving is large enough to justify the change
Moneysmart notes that if you plan to change lenders, you should check the costs and make sure the savings are worth any exit, break or application fees. (source)
Look closely at offset, redraw and surplus cash
In a higher rate environment, spare cash can be very useful when managed properly.
An offset account is a separate account linked to your mortgage. The money in that account reduces the loan balance used to calculate interest. A redraw facility works differently: it generally gives access to extra repayments you have already made, subject to the lender’s rules. (source)
Both can be useful, but neither should be assumed to be right without checking the details.
Questions to ask include:
- Do you actually use your offset account?
- Is the offset 100% or partial?
- Are you paying higher fees for features you do not need?
- Do you have reliable access to redraw if you need it?
- Would extra repayments be a better use of surplus cash?
- Do you have enough emergency buffer outside the loan?
For many borrowers, the goal is not just saving interest. It is also maintaining flexibility and peace of mind.
Fixed or variable? Avoid making the decision out of fear
When rates rise, it is natural to think about fixing.
The right answer depends on the borrower, the loan, the budget, the fixed-rate offer, the likely need for flexibility, and what the client can comfortably manage. A fixed rate may suit some borrowers who value certainty. For others, fixing after several rate rises can lock in a higher rate and limit flexibility.
This is not a decision to make because of one headline or one RBA announcement.
A balanced review should consider:
- How much certainty you need
- Whether you plan to sell, renovate or refinance
- Whether you need to make extra repayments
- Whether you use offset features
- How much repayment movement your budget can absorb
- Whether a split loan may be suitable
The RBA has said it will keep paying attention to data, domestic demand, inflation and the labour market when making future decisions, so borrowers should be wary of treating any single rate move as a complete picture of what comes next. (Reserve Bank of Australia)
Debt consolidation can help cash flow, but it needs care
For some borrowers, the pressure is not only the home loan. It may be credit cards, personal loans, car loans, business debts or tax commitments sitting alongside the mortgage.
Debt consolidation can sometimes improve monthly cash flow by bringing several repayments into one structure. However, it is not automatically cheaper. If short-term debt is spread over a longer loan term, the total interest cost can increase even if the monthly repayment falls.
That does not mean consolidation should be avoided. It means the borrower needs to understand the trade-off.
A proper review should explain:
- What the monthly cash flow improvement may be
- What the longer-term interest cost may be
- Whether the borrower can avoid rebuilding the same debts
- Whether the lender will accept the purpose and structure
- Whether there are tax, business or accounting considerations
This is especially important for self-employed borrowers and business owners, where household and business cash flow can overlap.
Self-employed borrowers and investors may need extra care
Not all borrowers are assessed the same way.
Self-employed borrowers, investors, SMSF borrowers and small business clients often have more moving parts. Income may need to be verified through tax returns, financial statements, notices of assessment, business activity statements, cash flow projections, trust deeds, lease documents or accountant input.
A rate rise can also expose weaknesses in an application. For example, lower profit margins, higher operating costs, tax debt, irregular income or recent loan changes may all affect the way a lender views the file.
APRA has previously confirmed the mortgage serviceability buffer remains at 3 percentage points, which is designed to help lenders assess whether new borrowers have capacity if circumstances deteriorate. (APRA)
For complex borrowers, the quality of the preparation matters. The aim is not just to submit an application quickly. It is to present the application clearly and address any weaknesses before a lender raises them.
Signs you should speak with a broker now
You do not need to wait until the next RBA meeting to review your position.
It may be worth speaking with a broker if:
- Your loan has not been reviewed for several years
- Your repayments have become uncomfortable
- You are falling behind on regular bills
- You are relying on credit cards or short-term loans to cover normal expenses
- You have recently come off a fixed rate
- You are self-employed and business cash flow has tightened
- You are considering refinancing but are unsure whether the savings justify the costs
- You want your current lender held to account before looking elsewhere
The earlier you review the situation, the more options you are likely to have.
A practical view from Compass Lending & Finance
At Compass Lending & Finance, Michael’s approach is to review the full picture before recommending a direction.
That means looking at the existing lender first, checking household cash flow, understanding the purpose of the loan, reviewing the structure, and weighing the real costs of change. Sometimes refinancing may be the right answer. Sometimes renegotiating with the current lender may be enough. Sometimes the better move is to restructure debt, rebuild a buffer, or simply understand the options before making a decision.
The point is to make a considered decision, not a rushed one.
Conclusion
The May 2026 RBA rate rise is a timely reminder to check whether your loan still suits your current situation.
You do not need to panic, and you do not need to assume refinancing is the answer. Start with the basics: your current rate, repayment, lender options, budget, loan features, cash buffer and future plans.
If you would like a practical review of your current home loan or lending position, contact Compass Lending & Finance and speak with Michael about the options available for your circumstances.
Frequently Asked Questions
Should I refinance after the May 2026 RBA rate rise?
Not automatically. Start by checking your current rate, asking whether your existing lender can improve it, and comparing the real cost of refinancing. A lower advertised rate may help, but fees, loan term changes and lost features can affect the outcome.
Is it worth asking my current lender for a better rate?
Yes, it can be. If your loan has not been reviewed for a few years, your current rate may not reflect current market offers. Even if you ultimately refinance, it is sensible to know what your existing lender is prepared to offer.
Should I use my offset account or redraw to reduce interest?
Offset and redraw can both help reduce interest, but they work differently and depend on the loan terms, fees and access rules. Check how your facility works before relying on it as a cash buffer. (Moneysmart)
