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Fixed vs. variable in 2026.
William Sun · May 2026
Every time the Reserve Bank moves — or looks like it might — the fixed vs. variable question resurfaces. Borrowers who haven't thought about their loan structure in years start thinking about it. The conversation is usually framed as a forecast: where are rates going, and should I lock in before they go up, or stay variable and catch the cuts on the way down?
That framing is a trap. It turns a structural financial decision into a guessing game, and nobody — not economists, not the RBA itself — consistently wins that game. The better question isn't where rates are going. It's what your loan needs to do for you over the next two to five years, and which structure gives you the most useful certainty for that period.
What fixed actually gives you
A fixed rate locks your repayment for a set term — usually one to five years. The repayment doesn't move regardless of what the RBA does during that window. For some borrowers, that predictability is worth paying a small premium for. Not because they expect rates to rise, but because knowing exactly what comes out of their account each month has real value — budgeting, planning, reduced anxiety.
What fixed doesn't give you is flexibility. Most fixed loans restrict or eliminate extra repayments. Offset accounts are either unavailable or capped. If your circumstances change — you sell, you refinance, you need to restructure — break costs can be significant. The lender calculates what they expected to earn for the remainder of the fixed term and charges you the difference. In a falling-rate environment, that number can be substantial.
Fixed is the right answer when certainty has more value than flexibility — and when you're confident you won't need to move or change the loan during the term.
What variable actually gives you
A variable rate moves with the lender's standard variable rate, which broadly tracks the RBA cash rate with a lag and a margin. When rates fall, your repayment falls. When they rise, it rises. The uncertainty cuts both ways, and over a full rate cycle, variable borrowers have historically paid less — but that average masks years where they paid more.
The structural advantage of variable is what it allows: full offset accounts, unlimited extra repayments, no break costs, the ability to refinance without penalty if a better deal emerges. For borrowers with meaningful savings sitting in an offset, the effective rate they're paying can be considerably lower than the headline rate suggests.
Variable is the right answer when flexibility has more value than certainty — when your financial situation is still evolving, when you carry significant offset balances, or when the fixed premium doesn't justify locking in.
The split option — and when it's actually useful
Most lenders allow you to split a loan — part fixed, part variable. Done deliberately, this can make sense: fix the portion of the loan you want predictability on, keep the rest variable with full offset access. The split ratio is a structural choice, not a hedge. It's not "I'm not sure, so I'll do half each." It's "I want $400,000 fixed for cash flow certainty, and $200,000 variable because my offset balance will sit against it."
Done carelessly, a split just adds complexity without purpose. Two loan accounts, two rate expiry dates to track, and the psychological comfort of feeling like you've hedged — without the analysis to back it up.
The questions that actually determine the answer
One — what does your cash flow look like?
If a rate rise of 0.5% would materially stress your monthly budget, fixed provides a ceiling. If you have significant offset savings or income headroom, variable's flexibility is worth more than the certainty.
Two — are you likely to need to change the loan?
Selling, refinancing, or restructuring inside a fixed term triggers break costs. If there's any reasonable chance your circumstances shift — a move, a career change, a growing family — fixed locks you into costs you may not be able to predict.
Three — what's the fixed premium?
Fixed rates are priced off wholesale swap markets, not the RBA rate. Sometimes the fixed rate available is lower than variable — lenders use it to attract new business. Sometimes it's higher. The spread matters. A 0.40% premium for two years of certainty is a different conversation than a 0.10% premium.
Four — what happens at expiry?
Fixed loans roll to the lender's standard variable rate at the end of the term — often one of the highest rates on their book. The borrowers who pay the loyalty tax most reliably are those who fixed, forgot about it, and never reviewed when the term expired.
The fixed vs. variable decision isn't resolved by calling the rate cycle correctly. It's resolved by understanding your own financial position clearly enough to know which structure serves it. That's the conversation worth having — before you sign anything, and again every time a fixed term ends.
About the author
William Sun
Principal Mortgage Broker · Brilliant Finance Solutions · Est. 2017
William Sun is the principal of Brilliant Finance Solutions, a Sydney mortgage practice established in 2017. He holds Credit Representative Number 498730, authorised under BLSSA Pty Ltd Australian Credit Licence 391237, and is a member of the Finance Brokers Association of Australasia (FBAA M-333308). Every client engagement begins with a written Strategy Memo — a structured assessment of loan options before any lender is approached.
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