Should You Fix Your Mortgage in 2026? Fixed vs Variable Rate Analysis

12 March 2026|7 min read

With oil prices dropping and inflation easing, is now the time to fix your mortgage? Detailed pros and cons analysis of fixed vs variable rates in the current Australian market.

The case for fixing your mortgage in 2026

Fixing your mortgage rate means locking in a guaranteed repayment amount for the fixed term — typically 1 to 5 years — regardless of what the RBA does with the cash rate during that period. As of March 2026, 2-year fixed rates are available from around 5.4 to 5.7%, compared to variable rates of 6.1 to 6.4% from the major banks. This means fixing now gives you an immediate rate reduction of 0.5 to 0.8% compared to most variable rates. The appeal of fixing is strongest when you value payment certainty for budgeting purposes, when you believe rates may not fall as much as the market expects (or could rise again), when you are on a tight budget and cannot absorb potential rate increases, or when the gap between fixed and variable rates is large enough to provide meaningful savings. On a $600,000 mortgage, the difference between a 5.5% fixed rate and a 6.2% variable rate is approximately $260 per month — or $6,240 over two years. That is real money, and it is guaranteed savings, not speculative. For borrowers who fixed at high rates in 2023-24 and are coming off those terms, the current fixed rates represent a significant improvement, even though they are still above the sub-2% rates of 2021.

The case for staying variable in 2026

The argument for remaining on a variable rate centres on flexibility and the expectation that rates will fall further as the RBA continues cutting. If the market's forecast of 75 to 100bp in total cuts materialises, variable rates could fall to 5.2 to 5.5% by early 2027 — potentially matching or beating current fixed rates. On a variable rate, every RBA cut flows through to your mortgage (typically within 1 to 2 weeks for most lenders), whereas a fixed rate remains locked regardless. Variable rates also come with features that most fixed rates do not: full offset account functionality, unlimited extra repayments, and redraw facilities. An offset account can be extremely powerful — if you have $50,000 in an offset against a $600,000 mortgage at 6.1%, you effectively save $3,050 per year in interest, which is equivalent to a rate discount of about 0.5%. Fixed rates typically do not allow offset accounts, or restrict them to a basic savings account with limited benefit. Extra repayments on fixed loans are usually capped at $10,000 to $20,000 per year, with break costs applying if you exceed the limit or refinance early. These break costs can be substantial — potentially thousands of dollars if rates fall significantly during your fixed term.

Current fixed and variable rates compared (March 2026)

Here is a snapshot of the competitive landscape for home loan rates in March 2026. Among the big four banks, variable rates for owner-occupiers paying principal and interest range from 6.09% to 6.39%. Their 1-year fixed rates are around 5.6 to 5.9%, 2-year fixed rates 5.4 to 5.7%, 3-year fixed rates 5.2 to 5.5%, and 5-year fixed rates 5.5 to 5.8%. Non-bank and smaller lenders are typically 0.2 to 0.5% lower across the board — variable rates from competitive online lenders start at around 5.8%, with 2-year fixed rates from 5.1 to 5.4%. Investment property rates add a premium of 0.3 to 0.5% above owner-occupier rates, and interest-only loans carry a further premium of 0.3 to 0.6%. The key observation is that fixed rates are currently below variable rates across all terms, which reflects the market's expectation that the RBA will cut further. This is known as an inverted yield curve in mortgage pricing — it means lenders and bond markets are confident that rates are heading lower. However, this also means the benefit of fixing is partially already priced in — you are getting a lower rate now, but you will not benefit from further cuts below the fixed rate during your term.

The split loan strategy: fixing part and floating part

For borrowers who cannot decide between fixed and variable — or who want elements of both — splitting the loan is a popular compromise. A typical split might be 60% fixed and 40% variable, or 50/50, depending on your priorities. The fixed portion gives you repayment certainty on the majority of your debt, while the variable portion maintains access to an offset account and unlimited extra repayments. Here is how it works in practice on a $700,000 mortgage split 60/40: the fixed portion of $420,000 at 5.5% costs $2,385 per month, while the variable portion of $280,000 at 6.2% costs $1,717 per month, for a combined total of $4,102. If you have $40,000 in your offset account against the variable portion, your effective variable balance drops to $240,000, saving $2,480 per year in interest. If the RBA cuts by another 50bp, your variable portion drops to around 5.7%, saving a further $93 per month on that portion. The split strategy works best when you have meaningful offset savings (so the variable portion benefits from them), when you want to hedge against both rising and falling rate scenarios, and when your lender allows flexible splits without additional fees. Most lenders allow you to split at no extra cost, though some require minimum balances on each portion. Check your lender's terms before committing.

Break costs: the hidden risk of fixing

One of the biggest risks of fixing is the potential for break costs if you need to exit the fixed term early. Break costs (also called early repayment adjustments) are calculated based on the difference between your fixed rate and the current market rate for the remaining term, applied to your loan balance for the remaining fixed period. If rates fall significantly during your fixed term, break costs can be enormous. For example, if you fix at 5.5% for 3 years and rates drop to 4.5% after one year, the break cost on a $500,000 loan could be $8,000 to $12,000. Break costs are triggered when you refinance to another lender during the fixed term, sell your property, make extra repayments above the allowed limit (typically $10,000 to $20,000 per year), or switch from fixed to variable mid-term. The calculation is complex and varies between lenders — it is based on wholesale swap rates, not the retail rates you see advertised. If there is any chance you might sell your property, refinance, or need to make large lump sum repayments in the next 2 to 3 years, fixing carries meaningful risk. Conversely, if you are confident you will hold the property and the loan for the full fixed term without major changes, break costs become irrelevant because they never get triggered.

What the experts and economists are forecasting

Major bank economists have published their rate forecasts for 2026 and beyond, and while they differ in detail, the consensus points to further easing. CBA forecasts the cash rate reaching 3.60% by the end of 2026, implying three more 25bp cuts from the current 4.10%. Westpac expects 3.85% by December 2026, implying two additional cuts. NAB predicts 3.60% by mid-2027, with gradual quarterly cuts. ANZ has the most cautious forecast at 3.85% by early 2027. If these forecasts are correct, variable mortgage rates could fall to the 5.2 to 5.7% range by late 2026 or early 2027 — roughly in line with where current 2-year fixed rates sit. This suggests that fixing now is a fair deal rather than a bargain — you get certainty at a rate that reflects the expected path of cuts, but you do not significantly outperform variable if the forecasts are right. However, forecasts are frequently wrong. If inflation proves stickier than expected (particularly services inflation driven by wage growth), the RBA could pause or even reverse direction. In that scenario, having locked in a fixed rate would prove very valuable. Alternatively, if the global economy weakens sharply and the RBA cuts faster than expected, staying variable would deliver greater savings.

Decision framework: which option suits your situation

Rather than trying to predict interest rates, focus on your personal financial situation and risk tolerance. Fix if you: have a tight budget with limited room to absorb higher repayments, are coming off a higher fixed rate and want to lock in the improvement, do not have significant offset savings, plan to hold the property for the full fixed term without selling, and value sleep-at-night certainty over potential savings. Stay variable if you: have a strong offset account balance (more than 10 to 15% of your loan), can comfortably absorb repayments 1 to 2% higher than current rates, want maximum flexibility for extra repayments or early payoff, may sell or refinance within the next 2 to 3 years, and are comfortable with the RBA's current easing trajectory. Split if you: want elements of both certainty and flexibility, have some offset savings but also want guaranteed fixed repayments on the bulk of your debt, are genuinely uncertain about the rate outlook, and want to avoid the all-or-nothing bet. Whatever you decide, the most important factor is not the rate itself but your overall financial health — emergency fund, manageable debt levels, and adequate insurance matter more than saving 0.2% on your mortgage rate. Use our Mortgage Calculator to model your specific numbers and Offset Calculator to see the impact of your savings strategy.