Fixed vs Variable: Which Rate Is Better in 2026?
With the RBA cash rate at 3.85% and fixed rates hovering between 5.5-6.5%, the fixed vs variable decision is back on the table. Here's how to think about it without needing a crystal ball.
How Each Works
A variable rate moves up and down with the RBA cash rate. When the RBA cuts, your repayments drop. When they hike, your repayments rise. You have full flexibility — unlimited extra repayments, redraw, offset accounts, and you can refinance anytime without break costs.
A fixed rate locks your rate for 1-5 years. Your repayments don't change regardless of what the RBA does. But you lose flexibility — most fixed loans limit extra repayments to $10,000-$20,000 per year, and breaking the loan early can cost thousands.
The Maths Right Now (March 2026)
A typical comparison on a $500,000 loan over 30 years:
| Variable (6.2%) | Fixed 2yr (5.8%) | Fixed 5yr (5.99%) | |
|---|---|---|---|
| Monthly Repayment | $3,063 | $2,939 | $2,995 |
| Extra Repayments | Unlimited | $10-20k/yr cap | $10-20k/yr cap |
| Offset Account | Yes | Rare | No |
| Break Costs | None | Can be $10k+ | Can be $20k+ |
| Risk | Rates could rise | Locked in | Locked in |
When to Fix
Fixing makes sense when you believe rates will stay the same or rise, you need budget certainty (your finances can't absorb a rate rise), or fixed rates are significantly below variable (0.5%+ gap). Fixing also makes sense if you're not planning to make large extra repayments or sell the property within the fixed period.
When to Stay Variable
Variable wins when you think rates will fall (you benefit immediately from cuts), you want to make large extra repayments to pay off the loan faster, you have a significant offset balance (fixed loans rarely offer offset), or you might sell or refinance within 1-3 years.
The Split Loan Compromise
Many borrowers fix a portion (50-70%) for certainty and keep the rest variable for flexibility. For example, on a $500,000 loan: fix $350,000 at 5.8% and keep $150,000 variable at 6.2%. You get budget certainty on the bulk while maintaining an offset account and unlimited extra repayments on the variable portion.
Compare Two Loan Options → Calculate Repayments →The Bottom Line
Nobody knows where rates are going. If the last few years taught us anything, it's that predictions are unreliable. The safest approach is to structure your loan so you can handle the worst case — stress-test your budget at 2% above your current rate. If you can afford that, variable gives you the most flexibility. If you can't, fixing some or all provides insurance.