Every time interest rates are in the news, the same question lands in my inbox: should I fix my home loan?
It is a fair question, and there is a lot riding on it. But the way most people frame it — “will rates go up or down?” — is the wrong starting point. Here is how I work through it with clients instead.
First, Understand What You Are Actually Buying
A fixed rate is not a bet on interest rates. It is a purchase of certainty. You are paying for the ability to know exactly what your repayment will be for a set period, usually one to five years.
That distinction matters, because it reframes the decision. The question is not “will I come out ahead?” It is “how much is repayment certainty worth to me, and what am I giving up to get it?”
Why you rarely “beat” the lender by fixing
Lenders set their fixed rates based on wholesale funding markets, which already price in the market’s collective expectation of where the cash rate is heading. If everyone expects rates to rise, fixed rates rise before the cash rate does.
In practice, that means the widely expected move is usually already baked into the fixed rate you are quoted. Fixing the week before an RBA announcement to “get in first” generally does not work the way people hope. Fix because the certainty suits you — not because you are trying to outsmart a market that prices this for a living.
What You Give Up When You Fix
This is the part that catches people out, and it is where I spend most of my time with clients.
Break costs
If you exit a fixed rate early — because you sell, refinance, or want to pay the loan out — the lender may charge a break cost. This is not a flat fee. It is calculated on the lender’s loss based on movements in wholesale rates over the remaining fixed term, and it can run into thousands or tens of thousands of dollars on a large loan.
The rule of thumb: break costs tend to be largest when rates have fallen since you fixed, and on loans with a long remaining fixed period. If there is any real chance you will sell within the fixed term, that risk needs to be part of the decision.
Limits on extra repayments
Most fixed loans cap how much extra you can pay each year, commonly around $10,000 to $30,000 depending on the lender. If you are expecting a bonus, an inheritance or proceeds from a sale, a fixed loan can stop you putting that money to work.
Offset accounts are often restricted
Full offset accounts are standard on variable loans. On fixed loans they are frequently unavailable, partial, or offered only on specific products. If you carry a meaningful cash balance, losing full offset functionality can quietly cost you more than the rate difference gains you.
Less flexibility to refinance
If a materially better deal appears, a variable borrower can move. A fixed borrower has to weigh the saving against the break cost, and the maths often does not work.
What a Variable Rate Gives You
Flexibility, essentially: full offset, unlimited extra repayments, redraw, and the ability to refinance without break costs. You also get the full benefit immediately if rates fall.
The trade-off is obvious — your repayment can rise, sometimes with little notice. If your budget has no headroom, that uncertainty is a genuine risk rather than a theoretical one.
The Option Most People Overlook: Splitting
You do not have to choose. A split loan divides your borrowing into a fixed portion and a variable portion — 50/50, 70/30, whatever suits.
What that buys you in practice:
- Certainty over a defined share of your repayment, so a rate rise only affects part of your loan.
- An offset account attached to the variable portion, so your cash still works for you.
- Capacity to make unlimited extra repayments against the variable portion.
- A smaller break cost exposure if your circumstances change, because only part of the loan is fixed.
For a lot of the Newcastle families I work with — particularly those with a young mortgage, a tight budget and some savings — a split is the sensible middle ground. It is not a compromise so much as a deliberate hedge.
Where Rates Sit Right Now
The RBA left the cash rate target unchanged at 4.35 per cent at its August 2026 meeting, following three increases earlier in the year. Inflation was 3.5 per cent in the year to July 2026 on the headline measure, with the trimmed mean at 3.6 per cent, according to the ABS.
The major bank economics teams are divided on what comes next: three of the four expect a further increase before the end of 2026, but they disagree on whether it lands in September or November, while one expects no change at all. The Board’s next decision is due at 2:30 pm on 29 September 2026, and the current rate is always published on the RBA cash rate page.
The relevant point for this decision: genuine expert disagreement is a signal that nobody knows. That is an argument for building a structure that works across a range of outcomes, rather than one that only works if a particular forecast is right.
Five Questions I Ask Before Recommending Either
- Could you absorb a repayment increase of 0.50 percentage points? If not, certainty has real value for you.
- Might you sell or refinance in the next two or three years? If so, fixing carries break cost risk.
- Do you hold meaningful savings? If yes, protecting full offset functionality may outweigh a lower fixed rate.
- Are you expecting a lump sum? Extra repayment caps on fixed loans could get in the way.
- Does uncertainty genuinely stress you? This is not a soft consideration. Peace of mind has value.
The Short Version
Fix if certainty matters more to you than flexibility, and you are confident you will not need to exit early. Stay variable if you value offset and flexibility and your budget can absorb movement. Split if you want some of both — which, honestly, describes most people.
What I would avoid is making the call based on a headline or a forecast. The structure that suits your household should hold up whether the next move is up, down or nowhere.
Before you decide, it is worth checking what you can comfortably service — our borrowing power calculator and loan repayment calculator are a useful starting point. If you are weighing this up on an existing loan, our refinancing service page explains how a review works.
Want to talk through what this means for your situation? Call David on 0417 676 191 or get in touch via our contact form.
This article is general information only and does not take into account your objectives, financial situation or needs. Figures are illustrative and current as at the date of publication. Interest rates, lender policies and government scheme rules change — please seek advice specific to your circumstances before acting.
Sources
- Reserve Bank of Australia, Statement by the Monetary Policy Board: Monetary Policy Decision, 12 August 2026.
- Australian Bureau of Statistics, Consumer Price Index, Australia, July 2026.
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