The fixed vs variable debate has always been a core part of the mortgage conversation in Australia. But in 2026, with rates having climbed sharply from historic lows and the RBA's easing cycle beginning slowly, the choice is more nuanced than ever.
Here's how to think through it.
Understanding the Current Rate Landscape
After the RBA's aggressive tightening cycle between 2022 and 2023, most variable rates peaked in the 6.0–7.5% range. Fixed rates — which price in expectations of where rates will be over the fixed term — have followed their own path.
As of early 2026, one-year fixed rates sit slightly below variable rates for many lenders, reflecting market expectations of modest cuts ahead. Two- and three-year fixed rates are generally in line with or slightly above variable.
This matters because: the gap between fixed and variable is much narrower than it was at the bottom of the cycle. Fixing doesn't provide the same "lock in a low rate" benefit it once did.
The Case for Variable
Variable rates move with the RBA cash rate. If rates fall — which economists broadly expect over 2026–2027 — your repayments fall automatically without any action required.
Variable suits you if:
- You expect rates to fall over your loan term
- You want flexibility to make extra repayments
- You plan to sell or refinance within 2–3 years (no break costs)
- You have an offset account you actively use
- Your income is variable and you want repayment flexibility
The main risk: if rates rise further, your repayments increase. The buffer in your loan approval (the 3% stress test) exists precisely for this scenario.
The Case for Fixed
Fixing your rate gives you certainty. For some borrowers, the ability to budget precisely — knowing your repayment won't change for 1, 2, or 3 years — is worth paying a small premium over variable.
Fixed suits you if:
- You're on a tight budget and need certainty
- You're buying a new home and have stretched your borrowing capacity
- You believe rates will rise further before falling
- Your income is stable and predictable
Watch out for:
- Break costs if you sell, refinance, or pay off the loan early during the fixed period
- Limited ability to make extra repayments (most fixed loans cap this at $10,000–$20,000/year)
- No offset account feature on most fixed rate products
What About Splitting?
Many borrowers choose to split their loan — fixing a portion (say 50–60%) for certainty while keeping the rest variable for flexibility. This is a genuinely useful strategy when the fixed/variable spread is small.
A typical split might look like:
- $400,000 fixed at 2 years — known repayments, buffer against further rises
- $200,000 variable with offset — flexibility, potential rate upside
The exact split depends on your situation. A broker can model both scenarios and show you the break-even point.
The Question You Should Actually Be Asking
The real question isn't "fixed or variable?" — it's "what structure best suits my specific situation and risk tolerance over the next 2–3 years?"
That means looking at:
- Your income stability
- Your likelihood of selling or refinancing
- How much of your loan you hold in offset
- Your comfort with rate uncertainty
At LFG, we run this analysis for every client before submitting an application. Book a call and we'll show you the numbers for your scenario.