Short answer: in a normal year, you'd fix if you expected rates to rise and stay variable if you expected them to fall. In 2026, fixed and variable rates have converged to within a few tenths of a percentage point of each other — so the rate itself isn't really the deciding factor anymore. What you value is.
That's an unusual situation. For most of the last decade, fixing meant paying a premium for certainty, or a discount for locking in during a falling-rate cycle. Right now, neither is really true. This guide covers where rates actually sit, what each option costs you beyond the headline rate, and a framework for deciding based on your own situation rather than a rate bet.
Where rates sit in August 2026
With the RBA cash rate at 4.35%, this is roughly how the market breaks down for owner-occupier principal-and-interest loans at a typical loan-to-value ratio:
| Loan type | Typical range |
|---|---|
| Big four bank, variable | 5.99% – 6.20% |
| Digital / non-bank lender, variable | 5.79% – 5.95% |
| Short-term fixed (1–2 years) | Low 6% range |
The gap between the sharpest variable offer and a typical short fixed rate is often well under half a percentage point — sometimes less. That's a genuinely unusual gap by historical standards, and it changes the calculus. Rates move regularly, so treat these as a snapshot rather than a permanent fact, and always check current offers before deciding.
Why fixed and variable have converged
Fixed rates aren't set by the RBA directly. Banks price them off the wholesale swap market — roughly, what it costs the bank to borrow money for a fixed period today — plus their own margin. Variable rates track the RBA cash rate more directly.
When markets expect the RBA to hold rates roughly steady, as most economists currently do heading into the August 2026 decision, the wholesale cost of fixing for a year or two ends up close to today's variable rate. Fixing only pays off clearly when the market expects rates to rise further than the cash rate already implies — and right now, that expectation is muted.
What you give up by fixing
You gain
- Repayment certainty for the fixed term
- Protection if the RBA hikes again
- Easier budgeting, especially for tight household cash flow
You give up
- Offset account access, in most cases
- Unlimited extra repayments (usually capped, often around $10,000–$30,000 per year)
- Flexibility — breaking early can trigger a break cost, which grows with the remaining term and the rate gap
What you give up by staying variable
You gain
- Offset account and redraw, in almost all cases
- Unlimited extra repayments, with no break costs to exit
- Automatic benefit if the RBA eventually cuts rates
You give up
- Certainty — your repayment can rise if the RBA hikes again
- Predictability for tight household budgets
Most major bank economists currently expect the RBA to hold at its August 2026 meeting, with no clear consensus on cuts before 2027. That's not a guarantee — only a snapshot of current expectations, which can and do change with each inflation print.
The middle path: split loans
A split loan divides your balance into a fixed portion and a variable portion — commonly something like 60% fixed, 40% variable, though any ratio is possible. The fixed slice gives you certainty on the bulk of your repayments. The variable slice keeps an offset account and unlimited extra repayments available for the rest.
It's a reasonable default when you're genuinely unsure, want some protection against further hikes, but don't want to give up flexibility entirely. The trade-off is complexity: you're managing two portions, two rates, and potentially two review dates instead of one.
Not sure which structure fits your loan?
Refii's savings estimate compares your options across 30+ lenders, fixed, variable and split.
A simple decision framework
you want repayment certainty, have a tight budget with little buffer for rate rises, and don't expect to need offset access or make large lump-sum repayments soon.
you value flexibility, actively use (or want to build) an offset account, or expect to make extra repayments or pay off the loan faster than scheduled.
you want some protection against further RBA hikes without giving up all the flexibility of a variable loan.
Whatever you choose, put a date in the calendar to review it in 12–24 months — loyalty tax and rate movements both erode an initially good decision over time.
Sources
- Reserve Bank of Australia, Cash Rate Target Overview.
- money.com.au, Big Four Bank Home Loan Interest Rates.
- Canstar, What Are Break Costs?