Last updated: September 2026. This guide covers Australian home loans. It is general information only, not financial advice.
Choosing between a fixed and a variable rate is one of the biggest decisions you will make on your home loan. In 2026 the choice is especially tricky. The Reserve Bank of Australia has already raised the cash rate three times this year, another rise is widely expected at the end of September, and fixed rates are now sitting at or even slightly below many variable rates.
In this guide we explain how fixed and variable home loans work in Australia, compare the numbers under different rate scenarios, cover break costs and features, and look at split loans as a middle path. By the end, you should have a clear sense of which option suits your situation, and what questions to ask your lender or broker before you commit.
The Short Answer
- Choose a fixed rate if you want certainty over your repayments for the next one to five years, have a tight budget or expect rates to keep rising.
- Choose a variable rate if you want flexibility, such as unlimited extra repayments and a full offset account, or might sell or refinance before a fixed term would end.
- Consider a split loan if you want some certainty and some flexibility.
How Fixed Rate Home Loans Work
With a fixed rate home loan, your interest rate is locked for a set period, usually one to five years. Your repayments stay the same during that time, even if the RBA raises or cuts the cash rate.
When the fixed period ends, the loan usually reverts to the lender’s variable rate, which may be much higher than the best rates available to new customers. That is why it pays to review your loan before the fixed term ends.
Fixed rate loans often come with restrictions:
- Extra repayments are usually capped, often at around $10,000 a year.
- Offset accounts are often unavailable or only partly available.
- Break costs may apply if you repay the loan, refinance or sell during the fixed term.
How Variable Rate Home Loans Work
With a variable rate home loan, your interest rate can change at any time, usually following changes in the RBA cash rate, although lenders can also move rates independently.
Variable loans usually offer more flexibility:
- Unlimited extra repayments with no penalty.
- Full offset accounts on many products.
- Redraw facilities.
- No break costs if you refinance or sell, apart from standard discharge fees.
The downside is uncertainty. When rates rise, your repayments rise too.
Fixed vs Variable at a Glance
| Feature | Fixed | Variable |
|---|---|---|
| Repayments | Stay the same for the fixed term | Can go up or down |
| If the RBA raises rates | You are protected | Repayments rise |
| If the RBA cuts rates | You miss out | Repayments fall |
| Extra repayments | Usually capped | Usually unlimited |
| Offset account | Often not available | Often available |
| Break costs | Can be significant | Generally none |
| Best for | Certainty | Flexibility |
Current Rates in 2026
As of late September 2026:
| Rate | Figure |
|---|---|
| RBA cash rate | 4.35% (raised in February, March and May 2026) |
| Lowest advertised variable rates (owner occupier) | around 5.4% to 5.9% |
| Big four lowest variable rates | around 6.09% to 6.25% |
| Lowest advertised fixed rates | from around 5.3% to 5.8% |
| Big four fixed rates | around 6.29% to 6.59% |
Sources: RBA, Canstar, Finder and Mozo, September 2026.
An unusual feature of the current market is that fixed rates are close to, and sometimes below, variable rates. This happens when financial markets expect the cash rate to rise. The RBA meets on 28 and 29 September 2026, and a rise of 0.25 percentage points is widely expected, with some economists predicting another in November.
Running the Numbers: A Three Year Comparison
Let’s compare a $600,000 loan over 30 years for the next three years:
- Fixed: 5.79% for three years, with repayments of about $3,517 a month.
- Variable: starting at 5.89%, with repayments of about $3,555 a month.
Here is how much interest each borrower would pay over three years under different scenarios:
| Scenario | Variable repayment after changes | Interest over 3 years (variable) | Interest over 3 years (fixed at 5.79%) |
|---|---|---|---|
| Rates stay the same | $3,555 | about $104,000 | about $102,200 |
| One rise of 0.25 points soon | $3,651 | about $108,100 | about $102,200 |
| Two rises of 0.25 points | $3,748 | about $111,900 | about $102,200 |
| One rise, then cuts of 0.50 points after a year | $3,463 | about $102,200 | about $102,200 |
Illustrative figures only. Real outcomes depend on the timing and size of rate changes and on your lender.
What this example shows
- Fixing looks attractive right now. Because the fixed rate starts slightly below the variable rate, the fixed borrower comes out ahead unless rates rise and then fall substantially.
- The gap could grow. If the RBA raises rates twice, the variable borrower pays about $9,700 more in interest over three years and about $230 more a month by the end.
- Flexibility still has value. The variable borrower keeps an offset account, unlimited extra repayments and no break costs, which can be worth more than a small rate difference for some households.
Choosing a Fixed Term
If you decide to fix, the length of the term matters:
| Fixed term | Advantages | Drawbacks |
|---|---|---|
| 1 year | Short commitment, quick chance to review | Little long term protection |
| 2 years | Covers the period markets expect rates to rise | You may roll off into a higher rate environment |
| 3 years | Popular middle ground | Break costs if you sell or refinance early |
| 5 years | Maximum certainty | Higher risk of missing out if rates fall; larger potential break costs |
In Australia, two and three year terms are the most popular. Few borrowers fix for longer than five years.
Break Costs: The Hidden Risk of Fixing
If you leave a fixed rate loan early, for example to sell, refinance or make large extra repayments, your lender may charge a break cost. Break costs reflect the lender’s loss when wholesale rates have fallen since you fixed. They can be:
- Small or zero if rates have risen since you fixed.
- Thousands or tens of thousands of dollars if rates have fallen significantly.
Ask your lender how break costs are calculated before you fix, especially if there is any chance you will sell or refinance during the fixed term.
The Split Loan Option
A split loan lets you divide your loan between fixed and variable portions, such as 50/50 or 70/30. This gives you:
- Some certainty on the fixed portion.
- Some flexibility on the variable portion, including extra repayments and, often, an offset account.
- Partial protection from rate rises and partial benefit from rate cuts.
Split loans are popular in Australia when the direction of rates is uncertain, as it is in 2026.
Rate Locks
When you apply for a fixed rate, the rate you are quoted may change before your loan settles. Many lenders offer a rate lock, usually for around 60 to 90 days, for a fee. With rates expected to rise, a rate lock can protect you from paying more at settlement.
What Happens When a Fixed Term Ends?
When your fixed term ends, your loan usually moves to the lender’s revert rate, which is often higher than its best rates for new customers. Many Australians experienced a sharp jump in repayments in 2023 and 2024, when loans fixed at around 2% during the pandemic rolled onto variable rates of 6% or more. This became known as the “fixed rate cliff”.
To avoid a surprise, contact your lender a couple of months before your fixed term ends, ask for its best rate and compare with other lenders.
Pros and Cons
Fixed rate
Pros: certainty; protection from rate rises; easier budgeting; currently priced close to or below variable rates.
Cons: limited extra repayments; often no offset account; possible break costs; you miss out if rates fall; revert rate at the end of the term.
Variable rate
Pros: flexibility; unlimited extra repayments; offset accounts; no break costs; benefit from rate cuts.
Cons: repayments can rise; harder to budget; exposed to further RBA rises in the near term.
Which Should You Choose? Questions to Ask
How would a rate rise affect you?
Work out your repayments if rates rose by 0.5 or 1 percentage point. If that would strain your budget, fixing all or part of your loan may give you peace of mind.
Do you have savings to put in an offset account?
If you hold significant savings, a variable loan with a full offset account can save more interest than a slightly lower fixed rate.
Might you sell or refinance soon?
If so, the flexibility of a variable rate and the absence of break costs could be worth more than any rate advantage.
Do you want to make large extra repayments?
Variable loans usually allow unlimited extra repayments, while fixed loans often cap them.
How long would you fix for?
Shorter terms, such as one to three years, reduce the risk of being locked in if rates fall later. Longer terms offer more certainty.
Who Each Option Suits
A fixed rate often suits:
- First home buyers with little room in their budget.
- Families who need predictable monthly costs.
- Borrowers who expect rates to keep rising and plan to stay put.
- Investors who want certainty over cash flow.
A variable rate often suits:
- Borrowers with large savings to use in an offset account.
- People who plan to make big extra repayments.
- Those who may sell, move or refinance in the next few years.
- Borrowers who can comfortably absorb higher repayments.
A split loan often suits borrowers who fall somewhere in between, or who simply cannot decide.
Common Mistakes to Avoid
- Fixing without checking break cost rules.
- Forgetting about the revert rate at the end of the fixed term.
- Choosing only on the headline rate without considering offset and extra repayment features.
- Trying to time the market perfectly. Nobody can reliably predict the RBA.
- Not considering a split loan as a middle ground.
Frequently Asked Questions
Should I fix my home loan in 2026?
It depends on your situation. With fixed rates close to or below many variable rates and further RBA rises expected, fixing some or all of your loan may appeal to borrowers who value certainty. Those who want flexibility may prefer variable or a split loan.
Why are fixed rates lower than variable rates?
Fixed rates are priced on expectations about future rates. When markets expect the cash rate to rise, lenders may offer fixed rates close to or below current variable rates.
How much could break costs be?
It depends on how much rates have fallen since you fixed, the size of your loan and how long is left on the term. If rates have risen, break costs may be small or nil. If rates have fallen sharply, they can reach tens of thousands of dollars. Ask your lender for an estimate before you commit.
Can I switch from fixed to variable?
Yes, but you may have to pay break costs if you switch during the fixed term.
What is a revert rate?
It is the variable rate your loan moves to when a fixed term ends. It is often higher than the lender’s best rates for new customers.
Can I have an offset account with a fixed loan?
Some lenders offer a partial offset or allow an offset on fixed loans, but many do not. If an offset matters to you, consider a variable loan or a split loan with an offset linked to the variable portion.
Is a split loan a good idea?
It can be, especially when the direction of rates is uncertain. It balances certainty and flexibility.
The Bottom Line
In Australia, a fixed rate home loan gives you certainty for one to five years, while a variable rate offers flexibility, offset accounts and unlimited extra repayments. In September 2026, with the cash rate at 4.35%, another rise widely expected and fixed rates sitting close to or below variable rates, fixing some or all of your loan may look attractive, but break costs and reduced flexibility still matter.
Compare offers from several lenders, check break costs and features, and consider a split loan if you want the best of both. To see where rates stand today, read our guide to the best home loan rates in Australia.
Disclaimer: This article is general information only and does not take into account your objectives, financial situation or needs. It is not financial advice. Rates are sourced from the RBA and public comparison data for September 2026 and are not offers of credit. Examples are illustrative. Speak with a licensed credit provider or mortgage broker before making a decision.