Interest Rate Rises - What they mean for your Financial Planning?!
- Feb 4
- 2 min read
The RBA has increased interest rates by 0.25% on the 3rd of February 2026 to combat higher than expected inflation.
Just months ago, most economists were expecting the next move to be rate cut, so this decision comes us an unwelcome surprise to most borrowers.
Interest rate rises are:
Bad for those with mortgages as their repayments increase, and their surplus cashflow decreases.
Typically good for those who have finished paying off their home loan, as the interest rates on their fixed income investments (such as cash, term deposits and bonds) increase.
Therefore, for many retirees (who often have a greater proportion in fixed interest investments) this is good news, whilst for most younger families who still have mortgages, this is bad news.
However, it is a little bit more nuanced than this.
Interest rate rises are not good for the share market. And, if we want to get even more technical, interest rate rises are not good for long duration fixed interest products. Many retirees will have a portion of their investments in these types of asset classes, and therefore their portfolios could also be negatively affected.
For those who still have mortgages, when interest rates rise, the benefits of paying off your mortgage or, allocating more money into your offset account increases relative to other types of personal investments, such as investing in shares. This occurs for two reasons:
Local share markets often decrease, or don't grow as fast.
You need to make a higher rate of return on your share portfolio to be able to to be able to outperform the 'benefit' of reducing higher interest. It is also important to consider that personally owned shares incur income tax at your marginal tax rate, so you need to consider the 'net' return versus the cost of your mortgage.
For those who are looking to get into the housing market, a rate increase typically slows the pace of property growth because the amount that people can borrow often reduces. However, again this is nuanced because the housing market also has supply constraints, meaning, property price stagnation or decreases are less than otherwise would be expected.
By working with a Financial Planner, we can help you navigate different economic landscapes, and adjust your plan accordingly.
The purpose of this blog is to provide general information only and the contents of this website do not purport to provide personal financial advice. The contents of the our blog does not take into account the investment objectives, financial situation or particular needs of any person and should not be used as the basis for making any financial or other decisions. The information is selective and may not be complete or accurate for your particular purposes and should not be construed as a recommendation to invest in any particular product, investment or security. The information provided on this blog is given in good faith and is believed to be accurate at the time of compilation.
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