Fixed or Variable Rate in 2026? How to Make the Right Call When Rates Are Moving Again

Rates are moving again in 2026 — and for the first time in several years, Australian borrowers are being forced to make a genuine decision between fixing and staying variable. With some forecasters tipping further rises and others expecting holds, the pressure to "lock in" something has rarely felt more acute. Here's how to think through this decision without making it based on fear.

Where Rates Are Right Now

After three RBA cash rate cuts in 2025, rates started moving upward again in 2026 as inflation picked up. Westpac has forecast up to three further rate hikes through the remainder of 2026, which would push the cash rate to around 4.85% by August. The RBA's own signals have been cautious — but the direction of travel is no longer clearly down.

For variable rate borrowers, this environment feels uncomfortable. For fixed rate borrowers whose terms are ending, the decision about what to do next has never been more consequential.

The fundamental reality about rate predictions

No lender, economist, broker, or analyst knows with certainty where rates will be in 12 or 24 months. Anyone who tells you otherwise is overstating their confidence. The fixed versus variable decision is therefore not about predicting rates correctly — it's about understanding which option you can live with regardless of what happens, and structuring your loan accordingly.

What Fixed and Variable Rates Actually Give You

Fixed rate gives you Certainty — your repayment doesn't change for the fixed term Protection if rates rise further during your fixed period Easier budgeting — you know exactly what you're paying Peace of mind if rate uncertainty is affecting your decision-making	Fixed rate costs you Flexibility — break costs can be substantial if you need to exit early Extra repayments are usually capped or prohibited Offset accounts are generally not available on fixed loans If rates fall during your term, you're locked out of the benefit
Variable rate gives you Flexibility — make extra repayments, access offset accounts Benefit immediately if rates fall No break costs if circumstances change More lender choice and competitive pricing	Variable rate costs you Certainty — repayments move with the market Budget pressure if rates rise unexpectedly Psychological discomfort in a rising rate environment

The Questions That Actually Matter

Rather than trying to predict rates, a better framework is to answer these questions honestly:

The fixed versus variable decision should be driven by your situation — not by headlines.

1. How tight is my budget? If a further 0.25% rate rise would cause real hardship, certainty has real value. If you have meaningful buffer, flexibility may serve you better.

2. Do I plan to sell, refinance, or make large lump sum repayments in the next 2–3 years? If so, the break costs on a fixed loan could outweigh any rate benefit entirely.

3. Do I have an offset account? If you use an offset account actively and it's reducing your interest meaningfully, switching to fixed means losing that benefit. The effective rate advantage needs to be weighed against what you'd lose.

4. What is the gap between the fixed and variable rate right now? If fixed rates are significantly higher than variable — which lenders price in an expectation of rises — you're essentially paying a premium for certainty up front.

5. How would I feel if rates rose another 0.50% tomorrow? Stress and emotional discomfort about your mortgage have a cost too. If fixing would let you sleep better and focus on other priorities, that's not a trivial consideration.

   
   

   The Split Loan Option — Often Overlooked

   
   

One approach that works well for many borrowers in uncertain rate environments is a split loan: fixing a portion of your loan while leaving the remainder on a variable rate.

For example, fixing 60% of a $600,000 loan at a competitive rate provides meaningful repayment certainty on $360,000 — while keeping $240,000 variable with full offset and extra repayment flexibility. You give up some of the upside if rates fall, and some of the protection if they rise — but you get a balanced structure that doesn't require you to make an all-or-nothing call on the rate direction.

"Fixed or variable isn't a bet on rates — it's a decision about what kind of certainty matters most to you right now, given your income, your buffer, and your plans."

What to Do Before You Decide

• Review your current rate — is your variable rate still competitive? Many borrowers on older variable products are paying more than necessary and could improve their position by simply refinancing to a better variable rate, without fixing at all

• Understand the break cost calculation on any existing fixed loan before making changes — these can be significant and are often underestimated

• Model both scenarios at your actual loan balance — a broker can show you the repayment difference between fixed and variable at current rates and stress-test both against further movements

• Consider your plans for the next 2–3 years — life changes (property sale, renovation, family changes) interact significantly with the fixed versus variable decision

General information only. Interest rate forecasts mentioned are sourced from publicly available bank research as at May 2026. This article does not take into account your personal financial situation or needs. Credit Representative Number 439731.

Not sure whether to fix, stay variable, or split?

I can model both options at your actual loan balance and show you the real numbers — so you can make this decision based on your situation, not on headlines.

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