Fixed vs. Variable Rate in 2026: Should You Lock In Before the Next Rate Rise?

Last updated: 22 March 2026

If you have a mortgage, there is a good chance this question has been on your mind since the March 2026 RBA hike: should I lock in a fixed rate before rates go higher?

You are not alone. With the cash rate now at 4.10% and ANZ forecasting a further hike to 4.35% in May, the conversation about fixed versus variable has never been more urgent. An ABC report published on 19 March 2026 even called for Australia to consider introducing 30-year fixed-rate mortgages — a product standard in the US but largely absent here.

In this post, I will give you the structured decision framework I use when working through this question with clients — covering how fixed rates are actually priced, what a break-even analysis looks like, who should seriously consider fixing right now, and who should stay variable.

The Current Rate Environment

Here are the key facts as of March 2026:

The RBA cash rate is 4.10% — the result of back-to-back hikes in February (to 3.85%) and March (to 4.10%)
These hikes reversed all three rate cuts made in 2025
ANZ has publicly forecast a third hike to 4.35% in May 2026, according to Canstar’s rate forecast tracker
A Finder survey found 84% of economists expect no cuts in the next 12 months
97% of new Australian mortgages are currently variable rate — meaning almost every borrower is fully exposed to any further hikes

The 97% variable rate statistic is striking. Australia has one of the highest rates of variable-rate mortgages in the developed world, which is precisely why RBA decisions flow through to household budgets so quickly and so directly. It is also why the question you are asking — whether to fix — has become so pressing.

How Fixed Rates Are Actually Priced

This is the part most borrowers do not fully understand — and it is critical to making a good decision.

Lenders do not price fixed rates based on today’s cash rate. They price them based on what the money market expects rates to do over the fixed term. If the market expects rates to rise further, fixed rates will already reflect that expectation — they will be priced higher than the current variable rate.

What this means in practice: the so-called bargain of fixing is not guaranteed. You are not necessarily avoiding the next hike by fixing today; you may already be paying for it in your fixed rate. The benefit of fixing is certainty and cash flow predictability, not necessarily a lower rate.

As a rough guide, here is how to think about current fixed rate positioning:

1-year fixed: Typically close to or slightly above current variable rates — reflects near-term hike expectations
2-year fixed: Priced to reflect where the market expects rates to peak and potentially plateau
3–5 year fixed: Often lower than the 1–2 year rates if the market expects eventual cuts after the current hike cycle — but predicting this has proven notoriously difficult

The exact rates available to you depend on your lender and loan type. Our home loan overview explains how different loan structures are assessed, and it is worth comparing across multiple lenders before deciding.

The Break-Even Analysis: A Simple Framework

Rather than trying to predict what the RBA will do, use a break-even framework. The question becomes: at what variable rate does fixing make sense?

Here is the simplified logic:

Take the fixed rate you are being offered (for example, 6.49% for 2 years)
Identify your current variable rate (for example, 6.29%)
The fixed rate is higher by 0.20% — you are paying a premium upfront for certainty
Ask: over the fixed term, does the expected average variable rate exceed the fixed rate?
If the variable rate rises enough that the average over the two years exceeds 6.49%, fixing was the better financial decision. If rates stay flat or fall, variable wins.

This framework does not tell you what to do — no one can predict rates with certainty. But it clarifies the trade-off you are making and lets you attach a probability to your decision rather than acting on anxiety alone.

If you are already considering refinancing as part of this review, our refinancing guide covers the full process and what to look for when switching lenders or loan structures.

The Split Loan Strategy

One of the most practical approaches in the current environment is the split loan — fixing a portion of your mortgage (typically 50–70%) while keeping the remainder variable.

This approach does several things:

Reduces risk in both directions: If rates rise further, your fixed portion insulates that share of your debt. If rates eventually fall, your variable portion benefits from that reduction.
Preserves flexibility: The variable portion typically retains features like an offset account or redraw facility, which purely fixed loans often restrict.
Manages financial pressure: Knowing that a portion of your loan is locked in reduces the month-to-month anxiety of every RBA announcement.

The trade-off is complexity — you are managing two loan components, potentially with different lenders or loan products. Break fees on fixed portions can also be significant if you need to exit early (to sell, refinance, or access equity).

Our refinancing strategies guide covers split loan structuring in more detail, including how lenders assess these applications.

Who Should Seriously Consider Fixing

Fixing is not right for everyone. Here is a clear breakdown of who it makes the most sense for — and who should think twice.

Strong candidates for fixing (or going split)

First-home buyers who purchased recently at today’s prices and rates — tight cash flow and limited buffer mean another hike could be genuinely stressful
Households on a single income with less capacity to absorb rate rises through additional earnings
Buyers at or near their borrowing limit — certainty of repayments helps with budget planning and avoids entering stress territory
Anyone who values predictability over the potential benefit of rate cuts — the peace of mind has genuine financial value

Better suited to staying variable

Property investors who rely on offset accounts to manage tax-deductible interest — fixing eliminates this flexibility and can reduce the effectiveness of tax strategies
Borrowers likely to sell or refinance within the fixed term — break fees can be substantial and erase any rate benefit
Those with strong cash flow who can absorb further rate rises without significant financial strain and prefer to wait for the eventual rate cut cycle

Our short-term mortgage options page covers flexible loan structures for borrowers who need to maintain access to their equity or anticipate changes in their property plans.

The 30-Year Fixed Rate Debate

The ABC’s 19 March 2026 report on long-term fixed mortgages raised an interesting structural question: should Australia offer 30-year fixed-rate products, as the US does?

In the US, borrowers routinely fix their rate for the full loan term. This insulates households from rate cycles entirely. In Australia, the longest widely available fixed term is typically 5 years — meaning borrowers always return to variable exposure at some point.

The argument for long-term fixed products is compelling: they would reduce system-wide mortgage stress by giving households genuine, permanent certainty. The challenge is that Australian lenders would need to access long-term fixed-rate funding to offer these products — something the current market structure does not easily support.

For now, Australian borrowers work within the existing 1–5 year fixed term framework. The practical implication: if you fix today, plan for the possibility that when your fixed term expires, you roll back onto whatever the variable rate is at that point — which may or may not be lower than today.

The Lagos Financial Approach

When a client asks me whether to fix, my starting point is never the rate — it is the person’s situation. The best rate on paper may not be the right answer for your financial structure, your plans, and your risk tolerance.

What a good broker does is compare fixed and variable options across 30+ lenders simultaneously, model the break-even under different rate scenarios, and factor in loan features — offset accounts, redraw, portability — that affect the real-world value of each option. That is not something a comparison website can do. It requires understanding your complete financial picture.

We work with borrowers across Sydney and Tasmania who are navigating exactly this decision right now. Whether you are a first-home buyer, an investor, or someone who has held a mortgage for years and is wondering if now is the time to act — the conversation starts with a clear assessment of where you stand.

Book your complimentary assessment today and let us work through the fixed versus variable decision together — with your actual numbers, your actual lender options, and a strategy that fits your situation.

Frequently Asked Questions

Is it too late to fix my rate before the May hike?

No — fixed rates are available now and can typically be settled within a few weeks. However, if markets are already anticipating the May hike, fixed rates may be pricing it in. The question is whether the certainty is worth it for your situation, not whether you have missed anything.

What happens at the end of my fixed rate term?

When your fixed term expires, your loan automatically rolls onto your lender’s standard variable rate — which is typically higher than what competitive variable-rate borrowers are paying. Plan to review your loan at least three months before your fixed term ends to avoid rolling onto a poor rate by default.

Can I make extra repayments on a fixed rate loan?

Most fixed rate loans allow limited extra repayments — often up to $10,000–$20,000 per year — without break fees. Going above this typically incurs an early repayment cost. If making large extra repayments is part of your strategy, a variable or split loan is usually more appropriate.

What are break fees and when do they apply?

Break fees (also called economic costs or early repayment costs) apply when you exit a fixed rate loan before the term ends — through refinancing, selling, or paying off the loan. The fee is calculated based on the difference between your fixed rate and current wholesale rates, and can be significant if rates have fallen since you fixed. Always model this scenario before locking in.