A variable home loan moves with the market and gives you maximum flexibility. A fixed rate locks your repayments for a set period, providing certainty. In February 2026, with the RBA raising the cash rate to {{rba_cash_rate}} and major banks forecasting a further hike to 4.10%, fixed rates may offer protection against near-term increases - while variable retains flexibility if the cycle turns later in the year.
The Core Trade-Off
| Feature | Variable | Fixed |
|---|---|---|
| Rate changes | Moves with RBA/market | Locked for fixed period |
| Extra repayments | Unlimited | Capped ($10k-$20k/yr) |
| Offset account | Usually available | Rarely available |
| Redraw facility | Yes | Limited or none |
| Break costs | None | Can be significant |
| Benefit from rate cuts | Immediately | Not until fixed period ends |
| Protected from rate rises | No | Yes, during fixed period |
When Variable Makes Sense
Variable is generally the better choice when:
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You expect rates to fall eventually. If the RBA cuts rates later in 2026 or beyond, your repayments drop automatically. However, markets are currently pricing in at least one more hike before any easing begins.
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You want to pay down your loan faster. Unlimited extra repayments and full offset account access means every spare dollar reduces your interest. On a $500,000 loan, keeping $30,000 in an offset at 6.00% p.a. saves $1,800 per year in interest.
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You might sell or refinance within 3 years. No break costs means you can exit anytime without penalty.
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You can absorb rate increases. Budget for your repayments at a rate 1-2% higher than current. If the buffer is comfortable, variable gives you the best flexibility.
When Fixed Makes Sense
Fixed is generally the better choice when:
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You need payment certainty. If your budget is tight and you can't absorb any increase, fixed removes the risk completely for the fixed term.
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You believe rates will rise further. CBA and Westpac have forecast a further hike to 4.10% by mid-2026. If that materialises, locking in now protects your repayments.
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You're disciplined about not making extra repayments. If you're unlikely to use offset or redraw features anyway, you're not giving up much.
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The fixed rate is significantly below variable. Sometimes banks price fixed rates below variable to attract business. If there's a gap of 0.30%+, fixed can make mathematical sense regardless of rate direction.
Split Loans: The Middle Ground
A split loan divides your mortgage into a fixed portion and a variable portion. For example, on a $500,000 loan:
- $300,000 fixed at 5.80% p.a. for 3 years (certainty on the majority)
- $200,000 variable at 6.10% p.a. (flexibility for extra repayments and offset)
This approach hedges your bet. If rates fall, you benefit on the variable portion. If rates rise, the fixed portion protects you.
Common split ratios:
- 50/50 - balanced hedge
- 70/30 (fixed/variable) - prioritises certainty
- 30/70 (fixed/variable) - prioritises flexibility
There's no optimal ratio. It depends on how much certainty you need and how much you plan to put into offset/extra repayments.
Modelling the Scenarios
Here's what happens to a $500,000 loan over the next 3 years under different rate scenarios:
Scenario 1: RBA Cuts 0.50% in Late 2026
| Loan Type | Monthly Payment (start) | Monthly Payment (end) | 3-Year Total Paid |
|---|---|---|---|
| Variable 6.10% p.a. | $3,033 | ~$2,870 | ~$106,300 |
| Fixed 5.80% p.a. | $2,934 | $2,934 | ~$105,600 |
| Split 50/50 | $2,984 | ~$2,900 | ~$106,000 |
In this scenario, variable and fixed end up very close, with variable slightly winning due to falling rates in the second half of the period.
Scenario 2: Rates Stay Unchanged
| Loan Type | Monthly Payment | 3-Year Total Paid |
|---|---|---|
| Variable 6.10% p.a. | $3,033 | ~$109,200 |
| Fixed 5.80% p.a. | $2,934 | ~$105,600 |
| Split 50/50 | $2,984 | ~$107,400 |
With no rate movement, fixed wins because it started at a lower rate.
Scenario 3: RBA Raises 0.25% (to 4.10%)
| Loan Type | Monthly Payment (start) | Monthly Payment (end) | 3-Year Total Paid |
|---|---|---|---|
| Variable 6.10% p.a. | $3,033 | ~$3,115 | ~$110,600 |
| Fixed 5.80% p.a. | $2,934 | $2,934 | ~$105,600 |
| Split 50/50 | $2,984 | ~$3,025 | ~$108,300 |
In a rising rate scenario, fixed clearly wins.
The Decision Framework
Ask yourself these questions:
- Can I afford a 1% rate increase? If no, fix at least a portion.
- Will I use offset/extra repayments? If yes, keep at least some variable.
- Am I likely to sell or refinance within 3 years? If yes, go variable (avoid break costs).
- Do I lose sleep over financial uncertainty? If yes, fix for peace of mind.
If you answered "yes" to multiple questions, a split loan is probably your best option.
So, Fixed or Variable?
There is no single "right" answer to fixed vs variable. The best choice depends on your financial situation, risk tolerance, and view on where rates are heading. In 2026, with the RBA signalling a data-dependent stance and major banks split on the outlook, a split loan gives you a sensible hedge. If rates do rise further, your fixed portion is protected. If the cycle turns and cuts begin later in the year, your variable portion benefits.
Related Guides
- Offset Account vs Redraw Facility - understand the key loan features
- How to Refinance Your Home Loan - switch to a better rate
- How to Read a Comparison Rate - compare true loan costs
Frequently Asked Questions
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