2026: Does it make sense to fix your mortgage rate now?
This report provides a comprehensive framework for deciding between fixed and variable mortgage rates. Unlike simplistic advice that assumes one approach is universally better, this analysis examines your decision through multiple lenses: market conditions, personal risk capacity, loan characteristics, and property purpose.
Key finding: The current market shows minimal premium for fixing (5.1–5.2% fixed vs 5.2% variable), making this primarily a risk management decision rather than a cost optimization exercise.
This article is general information only and does not consider personal financial circumstances. Borrowers should seek independent advice before making lending decisions.
Current Market Context
Rate Environment (February 2026)
The Australian mortgage market currently shows the following indicative rates:
| Product | Rate Range |
| Variable rate | ~5.2% |
| 1-year fixed | 5.1–5.2% |
| 2-year fixed | 5.2–5.3% |
| 3-year fixed | 5.3–5.4% |
Critical observation: The minimal spread between variable and 1-year fixed rates indicates market uncertainty about the direction of future rate movements. This is neither bullish nor bearish—it reflects genuine ambiguity.
What the RBA Has Signaled
As of early 2026, the Reserve Bank of Australia maintains a data-dependent stance:
- Inflation trending toward target range but not yet sustainably within it
- Labor market remains tight but showing signs of normalization
- No explicit guidance on timing of future rate changes
- Board minutes emphasize the need to return inflation to target sustainably
Important: The RBA has historically maintained rates at restrictive levels longer than markets initially expect. This pattern suggests caution against assuming early or aggressive rate cuts.
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2. Rate Outlook: Three Scenarios
Rather than pretending to know the future, we present three plausible scenarios with rough probability assessments based on current economic indicators.
Base Case: Stability (50% probability)
- Rates remain at current levels for 6-12 months
- Gradual cuts of 0.25–0.5% in late 2026 or early 2027
- Inflation normalizes without triggering recession
- Variable rates trend downward slowly from current levels
Bull Case: Earlier Cuts (25% probability)
- Inflation falls faster than expected
- Labor market weakens noticeably
- RBA begins cutting by mid-2026
- Total cuts of 0.75–1.25% over 12 months
Bear Case: Further Tightening (25% probability)
- Inflation proves stickier than expected
- Wages growth remains elevated
- RBA delivers 1-2 additional rate rises (0.25–0.5% total)
- Rates peak around 5.4–5.7% before eventual normalization
Critical insight: Notice that two of the three scenarios (base and bear) involve either stability or increases. The probability weighting does NOT favor aggressive cuts in the near term.
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3. The True Cost of Being Wrong
This is where most mortgage advice fails. The question is not ‘What will rates do?’ but ‘How painful is each type of mistake?’
Scenario A: You Fix, Rates Fall
| Loan Size | 0.5% Rate Miss | 1% Rate Miss |
| $500,000 | ~$2,500/year | ~$5,000/year |
| $750,000 | ~$3,750/year | ~$7,500/year |
| $1,000,000 | ~$5,000/year | ~$10,000/year |
Additional considerations if you fixed and rates fell:
- Break fees to exit early (potentially $2,000–10,000+ depending on loan size and term remaining)
- Locked out of offset account benefits on many fixed products
- Limited or no extra repayment capacity
- Cannot refinance to take advantage of competitive offers
Scenario B: You Stay Variable, Rates Rise
| Loan Size | Single 0.25% Rise | Two 0.25% Rises |
| $500,000 | +$70/month | +$145/month |
| $750,000 | +$105/month | +$215/month |
| $1,000,000 | +$145/month | +$290/month |
Critical differences:
- This cost is permanent until rates fall
- Each additional hike compounds the damage
- Impacts household cashflow immediately
- May trigger serviceability concerns if circumstances change
The asymmetry: Fixing when rates fall costs you known, capped amounts. Staying variable when rates rise exposes you to open-ended, compounding costs with no ceiling.
4. Personal Risk Assessment Framework
Generic advice fails because your optimal strategy depends on your specific circumstances. Answer these questions honestly:
Financial Resilience
Emergency fund:
- Do you have 6+ months expenses in accessible savings?
- Could you absorb a $300–500/month increase without lifestyle cuts?
Income stability:
- Single income or dual income household?
- Employment sector (cyclical vs defensive)?
- Likelihood of income growth in next 2 years?
Debt servicing ratio:
- What percentage of gross income goes to mortgage repayments?
- Under 25% = comfortable buffer | 25–35% = moderate | 35%+ = tight
Life Stage Factors
- Planning to sell or refinance within 12 months? (If yes, flexibility matters more)
- Expecting major life changes? (Children, career shift, relocation)
- Are you maximizing an offset account? (Fixed rates often limit this)
- Do you plan to make extra repayments? (Fixed rates typically cap these)
Psychological Factors
Be honest about your relationship with financial uncertainty:
- Does payment volatility cause you meaningful stress?
- Would budget certainty improve your quality of life?
- Can you accept missing out if rates fall, or will it eat at you?
Reality check: If you are stretched financially, fixing is not about optimization—it is about survival. Peace of mind has tangible value when cashflow is tight.
Don’t risk your biggest purchase on guesswork.
5. Break-Even Analysis
This shows exactly what rate movements make fixing worth it versus staying variable. Assumptions: 1-year fixed at 5.2%, variable at 5.2%, reviewing after 12 months.
On a $750,000 Loan
| Variable Rate Path | Net Outcome vs Fixed |
| Stays at 5.2% | Roughly neutral |
| Rises to 5.45% (single hike) | Fixed saves ~$1,875 |
| Rises to 5.7% (two hikes) | Fixed saves ~$3,750 |
| Falls to 4.95% (single cut) | Variable saves ~$1,875 |
| Falls to 4.7% (two cuts) | Variable saves ~$3,750 |
Key observation: The savings/costs are symmetric in dollar terms, but asymmetric in impact. Paying an extra $1,875 over 12 months is annoying. Having your monthly payment jump $160 and stay there is budget-disrupting.
What About Break Fees?
If you need to exit a fixed loan early, break fees can be substantial:
- $500,000 loan: $2,000–6,000 typical
- $750,000 loan: $3,000–9,000 typical
- $1,000,000 loan: $4,000–12,000+ typical
Break fees are calculated based on the difference between your fixed rate and current wholesale rates, multiplied by the remaining term. The larger the gap and the longer the remaining period, the higher the fee.
This is why shorter fixed terms (1 year) are preferable to longer ones (3–5 years) unless you are certain about your circumstances.
6. Decision Matrix
Based on the analysis above, here is a structured decision framework. This is not prescriptive—it is directional guidance based on risk/reward trade-offs.
Owner-Occupier Homes
| Loan Size | Strong Financial Buffer | Tight Cashflow |
| Under $500k | Variable defensible | Fix 1 year |
| $500k–$750k | Split 50/50 or fix 1 year | Fix 1–2 years |
| $750k–$1m | Fix 1 year minimum | Fix 1–2 years |
| Over $1m | Fix significant portion | Fix majority 1–2 years |
Rationale:
- Interest is not tax deductible for owner-occupiers
- Every rate rise hits after-tax income directly
- Budget certainty matters more when there is no tax offset
Investment Properties
| Loan Size | Positive/Neutral Cashflow | Negatively Geared |
| Under $500k | Variable acceptable | Split 50/50 |
| $500k–$750k | Variable or split | Fix 1 year or split |
| Over $750k | Split recommended | Fix significant portion |
Rationale:
- Interest is tax deductible (softens rate rise impact)
- Tax benefit is 30–45% depending on marginal rate
- Variable rates allow offset account strategies
- Greater tolerance for rate volatility if cashflow is healthy
7. Split Loan Strategy
A split loan divides your mortgage into fixed and variable portions. This is the most underutilized strategy for managing uncertainty.
How It Works
Example: $800,000 loan split 50/50
- $400,000 fixed at 5.2% for 1 year
- $400,000 variable at 5.2% (with offset account access)
Advantages
- Caps your downside: If rates rise, half your loan is protected
- Preserves upside: If rates fall, half your loan benefits immediately
- Maintains flexibility: Variable portion allows offset and extra repayments
- Reduces regret: You are never fully wrong
Common Split Ratios
| Split | When to Use |
| 50/50 | Genuine uncertainty about rate direction |
| 60/40 or 70/30 fixed | Lean toward protection, keep some flexibility |
| 40/60 or 30/70 fixed | Believe cuts are more likely, want partial insurance |
Who should consider a split:
- Anyone genuinely uncertain about rate direction
- Those who want offset account flexibility but also rate protection
- Borrowers with large loans ($600k+) who want to hedge risk
- Investors who value tax efficiency and cashflow control
Know if you should buy, rent it out, or walk away—before you sign.
8. Recommendations
Default Positions by Scenario
If you believe rates are equally likely to rise, fall, or stay flat, your default should be determined by your risk capacity, not market prediction.
High Risk Capacity
(Strong emergency fund, dual income, debt servicing under 25%)
- Stay variable or do 30/70 split (30% fixed)
- You can absorb rate rises without material lifestyle impact
Moderate Risk Capacity
(Adequate savings, stable income, debt servicing 25–35%)
- 50/50 split for loans over $500k
- Fix 1 year for loans under $500k
Low Risk Capacity
(Limited savings, single income, debt servicing over 35%)
- Fix 1–2 years, majority of loan
- Budget certainty is more valuable than optimization
If You Genuinely Believe…
Rates will definitely fall soon:
- Stay variable. Don’t lock in. Accept the short-term risk.
Rates will likely rise:
- Fix for 1–2 years, or at minimum fix 60–70% of the loan.
You have no idea (honest uncertainty):
- Split 50/50. This is the rational default when probabilities are unclear.
Final Considerations
- Don’t optimize for regret: The goal is not to win bragging rights. It is to protect your financial stability.
- Shorter is better: 1-year fixed terms give you a clean reset point without trapping you in a bad decision.
- Review in 12 months: Reassess when your fixed term ends. Economic conditions will have evolved.
- Ignore the noise: Both ‘always variable’ and ‘always fixed’ crowds are wrong. Your answer is personal.
- Talk to your broker: Get specific product recommendations, compare actual rates, and understand fee structures before committing.
Conclusion
Fixing your mortgage right now will not make you rich. It will not feel clever. You might even look back in 12 months and wish you had stayed variable.
But that is not the point.
The point is to manage risk in a way that aligns with your financial capacity, your tolerance for volatility, and the specific characteristics of your loan.
There is no universal right answer. There is only the answer that makes sense for you, given what you know today and what you can afford to be wrong about.
Make the decision that lets you sleep at night and keeps your household functioning if the market surprises you.
That is not gambling. That is strategy.
Thinking of making an offer? Many buyers underestimate the risk of deciding without independent analysis. PropCred’s Home Buyers Report (just $39) provides you with expert insights from property analysts with extensive industry experience. Your personalized report includes price guidance, rental returns analysis, growth potential assessment, and a clear buy-or-don’t-buy recommendation—complete with the reasoning behind the numbers. Get your professional investment deck delivered within one hour and make your decision with confidence.
Important Disclaimer
This report is for general information purposes only and does not constitute financial advice. Individual circumstances vary significantly, and mortgage decisions should be made in consultation with a licensed financial advisor or mortgage broker who can assess your specific situation. Rate forecasts are speculative and not guaranteed. Past performance of interest rates does not predict future movements. Always read product disclosure statements and understand the terms and conditions before committing to any mortgage product.
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