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Fixed, variable or split home loan: what to weigh up in 2026

Christian Tucker
1 day ago
6 min read

Updated: 19 hours ago

Insights from AGFB · Checked 2 October 2026 · About 6 minutes

In brief

  • A fixed rate keeps your repayments steady for a set period, usually one to five years. A variable rate can move, but usually comes with more flexibility.

  • Fixed rates are priced off wholesale markets that already reflect expected rates. Fixing is a price for certainty, not a discount on future rises.

  • The real differences sit in the fine print: break costs, caps on extra repayments, limited offset or redraw, rate-lock fees and the revert rate when the fixed term ends.

  • A split loan fixes part and leaves part variable, sized to suit your budget, savings and plans.

How do fixed and variable rates work?

With a variable rate, your lender can change the rate during the loan and your repayments move with it. Lenders often adjust variable rates after a Reserve Bank decision, but each sets its own rates and timing.

A fixed rate stays the same for an agreed period, usually one to five years, so your repayments don't change whether rates rise or fall.

On 29 September 2026 the Reserve Bank raised the cash rate target to 4.60%, effective 30 September, its fourth rise this year. A useful starting point now is what each structure does, rather than where rates might go next.

Certainty or flexibility?

Fixing buys certainty. You know the repayment for the fixed term, which can make budgeting easier when other costs are rising.

Variable buys flexibility. Variable loans usually allow extra repayments without penalty, often come with an offset account or redraw, and are easier to refinance, but repayments can rise.

The real question is which risk you would rather carry: higher repayments if rates rise, or paying more than you needed to, with less flexibility, if rates fall.

What does a fixed rate price in?

A fixed rate is not today's variable rate frozen in place. The RBA notes that lenders typically price new fixed rates off swap rates for the same term, which are wholesale rates heavily influenced by what markets expect the cash rate to do.

On top of that sit the lender's funding and hedging costs, its margin and competition for borrowers. So a fixed rate already has expectations built in, and it can move independently of the cash rate.

The RBA noted that some lenders reduced advertised fixed rates in June and July 2026, even though the cash rate had risen earlier in the year.

Break costs: where they come from

When you fix, the lender arranges funding or hedging to match your rate and term. If you repay early after wholesale rates have fallen, the lender may lose interest it expected to earn, and a break cost is designed to recover that economic cost.

Most early termination fees are banned on home loans taken out since 1 July 2011, but ASIC's guidance confirms break costs on fixed loans are still allowed, as are discharge fees. If rates have risen since you fixed, the break cost may be small or nil.

Here is a simplified, hypothetical example. You fix $500,000 for three years, and a year later the wholesale rate for the remaining two years is 1 percentage point lower. A rough break cost could be around $10,000, though every lender's formula differs.

Break costs can apply if you refinance, sell, switch to variable or repay more than the extra repayment allowance. Ask for a written figure and check its date, because it can change as market rates move.

The fine print on fixed loans

Extra repayments, offset and redraw

Many fixed loans cap extra repayments, for example at a set dollar amount each year or across the fixed term, and going over the cap can trigger break costs.

Many also come without an offset account, and redraw may be unavailable or limited to the extra repayments allowed. That matters if you expect a bonus, sale proceeds or growing savings during the term.

Rate locks

The fixed rate you see when you apply isn't always the rate you get. Without a rate lock, many lenders apply the fixed rate available on the day the loan settles or the fixed period starts.

A rate lock holds a quoted fixed rate for a set period, often around 90 days, for a fee that is often a small percentage of the loan amount. Terms differ, including what happens if rates fall before settlement.

What happens when the fixed term ends?

When the fixed period finishes, the loan usually moves to the lender's variable rate, often called the revert rate, unless you choose to refix or refinance.

That rate is worth questioning. RBA research in 2023 found that many borrowers rolling off fixed rates were likely to have then lowered their rate, by negotiating with their lender or by refinancing.

Diarise your expiry date and ask what your revert rate will be. A couple of months out, compare it with other options and lenders; our refinancing page explains how Christian can help.

How do split loans work?

A split loan divides one loan into two or more parts, usually one fixed and one variable. The variable part keeps room for extra repayments, and any offset or redraw usually attaches to it.

Here is a hypothetical example, not an offer. On a $600,000 principal-and-interest loan over 30 years at a variable 6.25%, a 0.50 percentage point rise would add about $197 a month if the whole loan were variable, or about $99 with half fixed until the fixed term ends. If rates fell instead, the half-fixed loan would see only about half the saving.

Choosing a split

There's no standard ratio. A practical starting point is the repayment increase you could absorb, then keeping enough variable to hold your savings in an offset and make the extra repayments you expect.

Some borrowers also match the fixed part to how long they expect to keep the loan, or use two fixed terms so the whole loan doesn't reprice at once. Each part can carry its own fees and conditions, and an offset usually reduces interest only on the variable part, so compare the cost of the whole structure.

A practical checklist

Have your loan documents handy for these questions. Our home loans page explains how Christian compares fixed, variable and split options across lenders.

  • How much could your repayment rise before your budget felt tight? Moneysmart suggests testing repayments at a rate 3 percentage points higher.

  • Might you sell, refinance or pay down a lump sum during the fixed term?

  • Do you want your savings working in an offset account?

  • What is the extra repayment allowance on the fixed loan, and what triggers break costs?

  • Is a rate lock available, what does it cost and how long does it last?

  • When does the fixed term end, and what rate will the loan revert to?

  • If you split, what fees, features and conditions apply to each part?

Common questions

Can I switch from fixed to variable before the term ends?

Usually, yes, but it generally counts as breaking the fixed rate, so break costs may apply. Ask for a written figure first.

Does fixing now protect me from further rises?

Your rate won't change during the fixed term. But the rate on offer already reflects what markets expect, so you are paying for certainty rather than getting ahead of the market.

Try the numbers

Use our Repayments calculator to compare repayments at a few rates, or to test each part of a split. Not sure where to start? Find Your Next Step asks a few short questions and points you to the right tool or enquiry.

Talk it through

Christian can help you weigh up fixed, variable or a split for your own loan.

Sources

General information only. This article does not take into account your objectives, financial situation or needs. Your full financial situation and requirements must be considered before any offer or acceptance of a loan product. All lending is subject to the lender's assessment and criteria, and fees and charges apply. Figures and rules are correct as at the checked date shown and can change.

Avantgarde Financial Brokerage Pty Ltd, Corporate Credit Representative 580346, authorised under Australian Credit Licence 389328 held by Connective Credit Services Pty Ltd.

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