Last updated: July 2026 · Reviewed by John Pierre Saliba, Director and Mortgage Broker, MFAA Accredited
Fixed vs Variable, The Core Difference
A fixed rate locks your interest rate for a set period, typically 1, 2, 3 or 5 years. A variable rate moves with the market, up when the RBA hikes, down when it cuts. The choice is fundamentally about certainty vs flexibility, and in April 2026 with the RBA in a cutting cycle, the answer requires careful thought.
In April 2026, with the RBA having already cut twice and potentially cutting again, locking in a fixed rate now means you may miss further cuts. That said, certainty has real value, particularly for tight budgets. Fixed and variable rates are close in 2026, making the split loan (fix part, keep part variable) the most sensible compromise for most clients.
Fixed Rate, Pros and Cons
Advantages
- Repayment certainty for the fixed period, important for budgeting
- Protection from rate rises if they occur
- Potentially lower rate in some environments
Disadvantages
- Break costs: exiting early can be very expensive, sometimes tens of thousands
- No benefit from rate cuts during the fixed period
- Extra repayments capped (typically $10,000–$20,000/year)
- No offset account on most fixed products
- Revert rate risk at expiry, rolls to standard variable (often uncompetitive)
Variable Rate, Pros and Cons
Advantages
- RBA cuts flow through to your repayment
- Unlimited extra repayments, offset accounts, full redraw flexibility
- No break costs, refinance or sell at any time
Disadvantages
- Rate rises increase repayments, stress-test your budget at +2–3%
- Lenders don't always pass on full RBA cuts to existing customers
2026 Rate Landscape
- 1-year fixed: 5.89–6.29% (competitive lenders)
- 2-year fixed: 5.79–6.19%
- 3-year fixed: 5.99–6.39%
- Variable (best rate): 5.99–6.39% (owner-occupier P&I)
Fixed and variable rates are very close in 2026, the decision is about certainty vs flexibility, not rate arbitrage.
The Split Loan, Best of Both
Fix a portion (40–60%) for repayment certainty. Keep the remainder variable with offset account for flexibility. Standard structure: $800,000 loan split 50/50.
- $400,000 fixed at 5.99% for 2 years, $2,397/month, certain
- $400,000 variable at 6.19%, offset account attached, moves with market
- Salary paid into variable offset, reduces daily interest without losing certainty on fixed portion
Who Should Fix?
- Tight budget needing repayment certainty
- Believe rates will rise from current levels
- Unlikely to sell or refinance in the fixed period
Who Should Stay Variable?
- Believe rates will continue to fall
- Have savings for an offset account
- May sell or refinance within 1–3 years
- Want maximum flexibility on extra repayments
