Fixed vs Variable Rates Explained

When you're getting a home loan, one of the first questions your lender will ask is: fixed or variable?

It sounds like a simple choice, but the answer depends on where interest rates are heading, how much risk you're comfortable with, and what loan features you need.

Here's how to decide.

What's the difference?

Variable rate

• Your interest rate changes when the RBA moves rates or your lender adjusts pricing
• Repayments go up and down
• Usually comes with more features (offset accounts, extra repayments, redraw)
• No break fees if you refinance or pay off the loan early

Fixed rate

• Your interest rate is locked in for 1-5 years
• Repayments stay the same no matter what happens in the market
• Usually fewer features (limited extra repayments, no offset)
• Break fees if you exit early (can be thousands of dollars)

Which is cheaper in 2026?

Right now, variable rates are usually lower than fixed rates. Here's why:

• The RBA has held rates steady after a big run of increases in 2022-2023
• Banks think rates might drop in 2026-2027
• Fixed rates price in expected future rate changes (and banks add a margin for certainty)

Typical rates in March 2026:

• Variable: 6.0-6.5%
• Fixed (3 years): 6.2-6.8%

So you're paying a premium for certainty. The question is whether that's worth it.

When to choose fixed

Fixed makes sense if:

• You need budget certainty — Repayments won't change for X years
• You think rates will go up — Lock in before they rise
• You're stretching your budget — Can't afford higher repayments if rates jump
• You won't need loan flexibility — No plans to make big extra repayments or refinance

Fixed is basically insurance against rate rises. You pay a bit more upfront for peace of mind.

When to choose variable

Variable makes sense if:

• You want an offset account — Most fixed loans don't offer this
• You plan to make extra repayments — Fixed loans usually cap this at $10-30k/year
• You think rates will drop — You'll benefit immediately
• You might refinance — No break fees on variable

Variable is more flexible. If you're organized with your finances, it's usually the better option.

What about split loans?

You can split your loan — half fixed, half variable. Example:

• $300k fixed at 6.3% (certainty)
• $300k variable at 6.1% (flexibility + offset)

This gives you a bit of both. If rates rise, half your loan is protected. If they fall, half your loan benefits.

Downside? More admin (two loan accounts) and you might not qualify for the lowest rates on each portion.

Break fees (the trap with fixed loans)

If you exit a fixed loan early — by refinancing, selling, or paying it off — you'll usually pay a break fee.

The fee depends on:

• How much time is left on your fixed period
• Whether rates have gone up or down since you fixed
• Your loan balance

Break fees can be anywhere from $0 (if rates went up) to $20,000+ (if rates dropped a lot).

This is why fixed loans are risky if you think you might move house or refinance in the next few years.

Can you refinance a fixed loan?

Yes, but you'll pay the break fee. Whether it's worth it depends on how much you'll save.

Example: If your break fee is $5,000 but you'll save $200/month by refinancing, you'll break even in 25 months. After that, pure savings.

Use our Refinance Calculator to see if switching is worth it.

What are most Australians doing?

In 2026, most new borrowers are choosing variable. Why?

• Fixed rates are higher than variable
• The RBA is expected to cut rates in 2026-2027
• People want offset accounts and extra repayment flexibility

But if you're on a tight budget and can't afford repayment increases, fixed might still make sense for you.

How to decide

Ask yourself:

1. Can I afford higher repayments if rates rise?
   If no → consider fixed
2. Do I want an offset account?
   If yes → probably variable
3. Will I make extra repayments?
   If yes → probably variable
4. Might I move house or refinance in the next 2-3 years?
   If yes → avoid fixed (or split)
5. Do I think rates will go up or down?
   Up → fixed, Down → variable

There's no universal right answer. It depends on your situation.

What happens when a fixed period ends?

When your fixed period expires, your loan automatically switches to your lender's standard variable rate (which is usually higher than the best rates).

This is a good time to:

• Negotiate a better rate with your lender
• Refinance to a new lender
• Fix again if you want more certainty

Don't just let it roll over. You'll almost always be on a worse rate than new customers.