Variable vs Fixed Rate: Decoding the Debate in 2026
Most borrowers spend more time thinking about how much they can borrow than how their variable vs fixed rate decision actually gets made. Which makes sense — the borrowing capacity question feels urgent. But the structure question? That’s the one that follows you for the next 25 years.
And right now, in mid-2026, the variable vs fixed debate is not a theoretical one.
The RBA has hiked three times since February – February, March and May – taking the cash rate from 3.60% to 4.35% and wiping out every cut from 2025 in the process. Some of the big four banks think it’s done. Others are forecasting two more rises before the year is out. Nobody really knows.
So what should you actually do?
So which is better — variable vs fixed rate?
Not on what rates are doing. Not on what the banks are predicting. On you — your income, your buffer, your ability to handle repayments going up again.
That said, there’s a lot of received wisdom around variable vs fixed that doesn’t really hold up when you look at the numbers. Let’s go through both.
The case for staying variable
Variable has been the better bet over most long multi-decade periods in Australia — but with an important caveat. It only wins if you actually use the flexibility.
• If the RBA cuts, your rate drops automatically. You don’t have to do anything.
• An offset account on a variable loan can save a meaningful amount of interest over time — but only if you’re actually keeping money in it.
• You can make extra repayments whenever you want, without restriction.
• If a better deal comes up, you can refinance without paying break costs.
Here’s the thing though. Research suggests only about 30% of Australian borrowers consistently make extra repayments. Which means the majority are on variable loans, getting hit by every rate rise, but not actually taking advantage of the flexibility that’s supposed to make it worthwhile.
If that’s you — and there’s no judgment in saying so, most people are in that boat — then the case for variable is weaker than it looks on paper.
The case for fixing
Fixed gets a bad rap as the “expensive” option. But that’s not quite right.
Yes, you’re paying a slight premium today — fixing a 2-year rate right now means accepting roughly 0.2–0.4% above the best available variable rate. But if the RBA moves once or twice more, that gap closes quickly. And if you’re someone who’s already been stretched by three hikes this year, removing the possibility of your repayments going up again has real value that doesn’t show up in a rate comparison.
Fixed works well when:
• You’re at or near your serviceability limit and another hike would genuinely hurt
• You’re going through a life change — new baby, renovation, career move — and need certainty
• You’re the kind of person who loses sleep when rates move
The tradeoffs are real too. Most fixed loans cap extra repayments, don’t come with a proper offset account, and charge break costs if you exit early. If you sell or refinance mid-term, that can get expensive.
Variable vs fixed: side by side
| Feature | Variable rate | Fixed rate |
|---|---|---|
| Repayments | Move with the RBA | Locked in for your term |
| Rate cuts | ✓ You benefit automatically | – You miss out |
| Rate rises | – You absorb every hike | ✓ You’re protected |
| Offset account | ✓ Full access | – Usually not available |
| Extra repayments | ✓ Unlimited | Often capped annually |
| Refinancing flexibility | ✓ No break costs | Break costs can apply |
| Best suited to | Disciplined borrowers with a buffer | Tight budgets or life changes |
General guide only. Features vary by lender and product. Speak to Indigo Finance for advice tailored to your situation.
Where the big four banks stand
Here’s where things get genuinely interesting. As of June 2026, the major banks don’t agree on what’s coming next.
| Bank | Forecast (as at June 2026) | Predicted peak rate |
|---|---|---|
| ANZ | No further hikes in current cycle | 4.35% — hold |
| CBA | No further hikes in current cycle | 4.35% — hold |
| NAB | One more hike expected in August | 4.60% |
| Westpac | Two more hikes — August and September highest forecast | 4.85% |
Forecasts sourced from published bank outlooks, June 2026. Subject to change. This is general information only.
ASX futures are pricing in at least one more hike later in the year. If NAB is right, variable borrowers absorb another 0.25%. If Westpac is right, it’s 0.50% more on top of an already significant year of increases.
What history actually tells us
Going back to the early 1990s, setting aside the COVID era which was a complete distortion, variable rates have tended to come out lower on average over long periods. That’s the stat that gets quoted a lot.
What gets quoted less is that the wins for fixed have been concentrated, significant, and very real for the borrowers who got the timing right. Locking in before the 2022–2023 hiking cycle? Brilliant. Fixing at a low rate in late 2020? Even better. Since about 2010 there have been multiple periods where 3-year fixed products actually undercut variable rates — which tends to surprise people.
The bottom line: variable wins when rates fall and you’re disciplined about using the flexibility. Fixed wins when you lock in ahead of a hiking cycle. We are currently in a hiking cycle.
Should you split?
A lot of clients we’re speaking to right now are landing on a split – fixing part of the loan for certainty while keeping the rest variable for offset access and flexibility.
It’s not a perfect answer. No structure is in a market like this. But 50/50 or 60/40 fixed/variable gives you protection against further rises on a meaningful chunk of the debt, while keeping the door open if rates do eventually start coming down.
For borrowers who’ve already had a tough year repayment-wise, it’s often the option that lets them actually sleep.
One thing worth flagging
Less than 5% of Australian mortgages are currently on fixed terms, according to the RBA. That’s a striking number. It means the vast majority of borrowers have absorbed all three rate rises this year directly – and will absorb any further moves too.
If you’re in that group and you haven’t reviewed your loan structure recently, now’s a reasonable time to do it. Not because fixing is necessarily the answer — it might not be, but because you should at least be making an active choice rather than just staying put by default.
The worst outcome is absorbing rate rise after rate rise on a structure you haven’t thought about in three years.
Want to know where you stand?
Share your loan size, how long you’ve had it. We’ll run the numbers and tell you honestly what makes sense.
