With the RBA cash rate at 4.35% after three increases in 2026, the fixed vs variable choice looks different from two years ago. This guide compares actual rate data, break costs, and who each option suits right now.
To make an informed fixed-vs-variable decision in mid-2026, you need to understand where rates currently sit and what the market expects. The RBA cut the cash rate three times in 2025, from a peak of 4.35% to a low of 3.85%. In 2026, the RBA reversed course with three rate increases in February, March, and May — returning the cash rate to 4.35% at the June 2026 board meeting.
Major bank standard variable rates for owner-occupiers paying principal and interest are currently approximately 6.3–7.0% p.a. Fixed rates for 1–3 year terms are offered at approximately 6.0–6.8% p.a. — broadly in line with variable rates, which is historically significant: it means fixed rates are not obviously cheap relative to variable.
A fixed rate mortgage locks your interest rate for a specified term — typically 1, 2, 3, or 5 years in Australia. After the fixed period, the loan reverts to the lender's standard variable rate (unless you refix or refinance).
A variable rate mortgage moves with the lender's variable rate, which is influenced by (but not always equal to) changes in the RBA cash rate. Variable rates have full product flexibility.
A split loan divides your mortgage between a fixed and variable component. Common splits include 50/50, 60/40, or 70/30. This approach captures some of the benefits of both structures.
| Example: $700,000 Loan — 60/40 Split | Fixed Portion | Variable Portion |
|---|---|---|
| Loan amount | $420,000 @ 6.2% fixed (2yr) | $280,000 @ 6.5% variable |
| Monthly repayment | $2,564 (fixed) | $1,770 (variable) |
| Extra repayment capacity | Limited ($10k–$30k/year) | Unlimited |
| Offset account | Not available | Available on variable portion |
The split approach is increasingly popular because it gives certainty on the fixed portion while preserving flexibility — particularly the ability to make extra repayments and use an offset account — on the variable portion.
Break costs are one of the most misunderstood aspects of fixed rate mortgages. They apply when you exit a fixed rate loan before the end of the fixed term for any reason — including selling the property, refinancing, or unexpectedly being able to pay off the loan.
Break costs are calculated using a complex formula based on the difference between your contracted fixed rate and the current wholesale rate the bank can obtain for that remaining period. In a falling rate environment, this gap is large and break costs can be substantial — sometimes $20,000–$50,000+. In a rising rate environment (like 2026), break costs are often close to zero because the lender can redeploy the funds at higher rates.
| Your Situation | Best Option |
|---|---|
| Tight household budget, need repayment certainty | Fixed rate (1-2 year) |
| Planning to sell or refinance within 2 years | Variable rate (avoid break costs) |
| Investor with potential future property conversion | Variable rate with offset account |
| Want certainty on most of loan, flexibility on rest | Split loan (60% fixed, 40% variable) |
| Aggressively paying down loan with extra repayments | Variable rate (unlimited extra repayments) |
| Both partners confident about income stability | Fixed rate if rates currently attractively priced |
Model your repayments at different interest rates to see the cost of rate changes on your specific loan amount.
Open Mortgage Calculator →Can I switch from variable to fixed mid-loan?
Yes. You can ask your lender to lock in a fixed rate at any point during a variable rate loan. Your lender will apply their current fixed rate for the selected term. This is a legitimate strategy if you believe rates are about to rise significantly. There may be a small rate-lock fee to secure the offered rate while paperwork is processed.
What happens at the end of a fixed rate term?
At the end of the fixed term, your loan automatically reverts to the lender's standard variable rate. Most lenders notify you 30-60 days before the fixed term expires and offer the option to refix at then-current rates or move to variable. You should actively compare rates at this point rather than simply accepting the revert rate — it is often higher than competitive market rates.
Are fixed rates going up or down in Australia?
As of June 2026, the RBA has held the cash rate at 4.35% at the most recent board meeting following three increases in 2026. Market pricing and economist forecasts are divided on whether further increases or eventual cuts are more likely — which is why fixed rates are broadly in line with variable rates rather than clearly above or below them. Predicting future rates reliably is not possible.
Can investors claim interest on a fixed rate investment loan?
Yes. Interest on a fixed rate investment property loan is deductible in the same way as variable rate interest — the deductibility depends on the purpose of the loan (to acquire an income-producing property), not the rate structure. Break costs paid when exiting a fixed rate investment loan are also generally deductible in the year they are incurred.