Rates & Market
Fixed vs variable home loans in 2026
10 min read · By Daniel Lagden · 6 June 2026
The short version
- Fixed = predictable repayments; variable = flexibility and features.
- Fixed loans often limit extra repayments and may not offer a full offset.
- Breaking a fixed loan early can trigger significant break costs.
- Splitting fixed and variable can give you a bit of both.
Fixed buys certainty and costs flexibility. Variable buys flexibility and costs certainty. Neither is smarter than the other, and anyone telling you which to pick without asking what you plan to do over the next few years is guessing. What has changed in 2026 is the backdrop: the cash rate rose in February, March and May before being held, so this decision is being made in a firmer market than it was.
Quick summary: fix if repayment certainty genuinely matters to your household and you are confident you will not need to change the loan. Stay variable if you want offset, unlimited extra repayments and the ability to move without penalty. Split if you honestly want both, which many people do. The deciding question is what might change in your life, not what you think rates will do.
What do you actually give up by fixing?
| Feature | Fixed | Variable |
|---|---|---|
| Repayment certainty | Yes, for the term | No |
| Extra repayments | Usually capped | Generally unlimited |
| Offset account | Often unavailable or limited | Generally available |
| Redraw | Often restricted | Generally available |
| Exit before term ends | Break costs apply | No break cost |
| Benefit if rates fall | No | Yes |
The row people regret is break costs. They are not a penalty in the punitive sense, they are the lender recovering its loss on the funding it arranged for your fixed term, and they can be large when rates have moved against the lender since you fixed. If there is any real chance you will sell, refinance or come into a lump sum during the term, that risk is the main argument against fixing.
So what should actually decide it?
Not a forecast. Nobody, including us, knows where rates go, and a household budget built on being right about that is fragile. The better question is what is likely to change in your life during the fixed term.
- Are you likely to sell or move within the next few years?
- Might you renovate, or need to release equity?
- Are you expecting a lump sum, an inheritance, a bonus or a settlement?
- Do you have savings that would work harder in an offset than as extra repayments?
- Would an unexpected repayment rise genuinely strain your household, or merely annoy you?
If the answer to the last question is that it would genuinely strain you, that is the strongest case for fixing there is, and it has nothing to do with predicting rates. Certainty has real value to a household living close to its limits, and it is worth paying for.
How does a split actually work?
You divide the loan and fix one portion while leaving the other variable. A common shape is half and half, but there is nothing special about that ratio and the right one depends on your circumstances. The fixed part gives you a floor under your repayment; the variable part keeps an offset available and lets you make unlimited extra repayments.
A split is genuinely useful, with one caution: extra repayments should generally go against the variable portion, because that is where they are unrestricted. People sometimes set up a split and then direct all their spare cash into the fixed side, where it hits the annual cap and achieves nothing.
What happens when a fixed term ends?
It reverts to the lender's standard variable rate, which is frequently well above what the same lender offers a new customer. That gap is where borrowers quietly overpay, and it applies automatically unless you act before the expiry date.
Diarise your fixed rate expiry three months out, not on the day. That is enough time to get a retention offer, compare the market and complete a switch if you decide to. Our guide on a fixed rate expiring into a rising market walks through the sequence.
Does fixing affect your borrowing capacity?
Not in the way people hope. Lenders assess affordability at a rate three percentage points above the actual rate regardless of whether you fix, so fixing at a lower rate does not let you borrow more. The buffer is applied either way, which surprises borrowers who assumed a lower fixed rate would improve their assessment.
How are break costs actually calculated?
Break costs are not a flat penalty and they are not arbitrary. When you fix, the lender arranges funding at a corresponding fixed cost for that term. If you exit early, the lender may have to unwind that arrangement, and if wholesale rates have moved against them since you fixed, unwinding it costs money. The break cost recovers that loss.
The practical implications follow from that. The cost is larger when there is more of your term remaining, larger on a bigger balance, and largest when rates have fallen since you fixed. If rates have risen since you fixed, the break cost can be small or close to nothing, because the lender is not out of pocket. This is why the only reliable answer is to ask your lender for the actual figure on the day rather than estimating.
Break costs are also why fixing a loan on a property you might sell is risky in a way that fixing your long term home is not. The risk is not the rate, it is the exit.
What should you do if your circumstances change mid term?
Do not assume you are trapped. Depending on the lender and the situation there may be options short of breaking the loan outright, and it is worth asking before you conclude that the fixed term has made a decision for you.
- If you are selling and buying again, ask whether the fixed rate is portable to the new property. Some lenders allow it, which avoids the break entirely.
- If you need funds, an additional loan or a split alongside the fixed portion may be possible without touching the fixed part.
- If you have come into a lump sum, check the annual extra repayment cap before paying it in, since exceeding it can trigger a charge.
- If you are in genuine difficulty, hardship provisions apply to fixed loans just as they do to variable ones.
Does a split loan complicate anything?
Slightly, and the complications are worth knowing rather than avoiding. You will have two loan accounts with two repayments, and the fixed portion will have its own expiry date to manage. Some lenders charge an account fee per split, which is small but worth asking about.
The one genuine trap is where your extra repayments and offset savings sit. Both belong against the variable portion, because that is where they are unrestricted and where an offset can operate. Borrowers who direct spare cash at the fixed side hit the annual cap and achieve much less than they intended.
How does this decision interact with an offset account?
An offset reduces the interest charged on the loan it is linked to, without reducing the balance. It is most valuable when you hold meaningful savings, and it is generally either unavailable or heavily limited on fixed rate loans.
That makes the offset question a useful tiebreaker. If you hold, or will hold, savings large enough that offsetting them would beat a small rate discount, that is an argument for keeping at least part of the loan variable. If your savings are modest and likely to stay that way, the offset matters much less and fixing costs you little.
General information only, current as at August 2026. Product features, break cost calculations and lender policy vary and change, and nothing here is a prediction about interest rates. Confirm the specifics of any product before committing. This is not credit advice.
Run the numbers
Frequently asked questions
Is it better to fix or stay variable right now?
It depends on your circumstances rather than on a rate forecast. Fix if repayment certainty matters and you are confident you will not need to change the loan. Stay variable if you want offset, unlimited extra repayments and the freedom to move.
What are break costs and how big can they be?
They are the lender recovering its loss on funding arranged for your fixed term. The amount varies with rate movements and remaining term and can be substantial, so always ask for the actual figure before acting.
Can I make extra repayments on a fixed loan?
Usually up to an annual cap. Above that, fees can apply. If making significant extra repayments matters to you, a variable portion or a split is generally a better fit.
Can I have an offset account with a fixed rate?
Often not, or only in a limited form. This is one of the main practical reasons borrowers choose a split rather than fixing the whole loan.
Is a split loan a good idea?
It can be, where you genuinely want both certainty and flexibility. Direct extra repayments to the variable portion, since that is where they are unrestricted.
Does fixing let me borrow more?
No. Affordability is assessed at a rate three percentage points above the actual rate whether you fix or not, so fixing at a lower rate does not improve your assessment.
What happens when my fixed term expires?
The loan reverts to the lender's standard variable rate, which is often higher than what a new customer is offered. Start reviewing about three months before expiry.
