Fixed vs Variable Mortgage Rates in 2026: Which Should You Choose?

The Question Every Borrower Is Asking

With three major banks now forecasting two rate hikes that could push the cash rate to 4.35%, the fixed vs variable debate has roared back to life.

For the past two years, most borrowers have sat on variable rates, benefiting from competition between lenders and the flexibility to make extra repayments. But the prospect of rates heading back towards their 2023 peak is changing the maths.

Where Rates Sit Right Now

The current cash rate is 3.85%, with the average variable mortgage rate sitting around 5.75% to 6.00%.

Fixed rates tell an interesting story. Some lenders are pricing 2 and 3-year fixed rates in the low to mid 5% range, which reflects market expectations that the hiking cycle will be short. If the RBA does hike twice and then holds, borrowers who fix now could come out ahead.

But if rates go higher than expected (Bank of America is forecasting up to 4.5%), those fixed rates could end up looking even better.

The Case for Fixing

Certainty. You know exactly what your repayments will be for the fixed term. In a household budget already under pressure from rising fuel and food costs, that certainty has real value.

Protection against the worst case. If the Middle East conflict drags on and oil prices stay elevated, further rate hikes beyond May aren’t off the table. Fixing now protects you against that tail risk.

Some fixed rates are competitive. Lenders who believe rates will come back down are pricing their fixed products aggressively to win market share.

The Case for Staying Variable

Flexibility. Variable loans typically allow unlimited extra repayments, offset accounts, and redraw facilities. Fixed loans often restrict or remove these features.

Rates may not rise as much as forecast. If oil prices stabilise or the conflict de-escalates, the RBA may stop at one hike or even hold entirely. In that scenario, variable borrowers avoid locking in at a higher rate.

Break costs. If you fix and rates subsequently fall, breaking the fixed term can be expensive. The cost is calculated based on the difference between your fixed rate and the current market rate, multiplied by the remaining term.

The Split Loan Compromise

For many borrowers, the smartest move is a split loan. Fix a portion (say 50-60%) to lock in certainty on the bulk of your repayments, and leave the remainder variable to maintain flexibility and access to offset or redraw.

This approach gives you:

• Budget certainty on the fixed portion
• Ability to make extra repayments on the variable portion
• Reduced exposure to rate rises without fully committing to fixed

Three Steps to Take This Week

1. Get a rate comparison. Don’t just check your own lender. The difference between the best and worst variable rates on the market can be 0.5% or more, which translates to thousands per year.

2. Model the scenarios. Calculate your repayments at the current rate, at 4.10% (one hike), and at 4.35% (two hikes). Know your numbers before you make a decision.

3. Talk to a mortgage broker. A broker can access dozens of lenders and find fixed, variable or split options that match your situation. This is exactly the kind of environment where broker advice pays for itself.

Find a Mortgage Broker

The right loan structure could save you thousands over the next two to three years. Find a mortgage broker on WealthWorks who can compare your options and help you lock in the best deal for your situation.