The fixed vs variable question has shifted — and most borrowers haven't noticed yet

The Reserve Bank's third consecutive hike has put the cash rate back at 4.35%. Variable lending still dominates new mortgages, but the appetite to fix is rising — and the price of doing so has changed.

When the Reserve Bank of Australia lifted the cash rate to 4.35 percent on 6 May, it completed a round trip that few would have predicted twelve months ago. The rate stood at the same 4.35 percent in late 2024, fell to 3.60 percent through three cuts during 2025, and has now climbed back over three consecutive meetings in February, March and May. For borrowers, the question that came back along with the rate is the one that always returns when the cycle turns: should the next loan be fixed or variable?

The honest answer, looking at how Australians are actually borrowing, is that almost no one is fixing. The latest Reserve Bank Statement on Monetary Policy notes that fewer than five percent of new and outstanding mortgages sit on fixed-rate terms, and other industry data puts the share of new lending that's fixed at under two percent. Variable lending, in short, has won the post-pandemic decade.

What's interesting is the gap between what borrowers do and what borrowers say. Research published by Money.com.au this year found that more than one in three mortgage holders plan to lock in a fixed rate during 2026, citing protection against further hikes as the main reason. Yet the actual settlement data shows variable continuing to dominate. The split between intention and behaviour is the central tension of the 2026 fixed-versus-variable decision.

Where the rates actually sit

Lenders moved on fixed rates well before the Reserve Bank moved on the cash rate. Through the first quarter of 2026, more than sixty banks and credit unions repriced their fixed offers higher, with the big four following one another up the curve. Canstar's tracking shows the number of lenders advertising at least one fixed rate below six percent fell from eighty-three at the start of the year to twenty-nine by mid-April. Sub-five percent fixed rates have all but disappeared.

The major banks now sit in a tight cluster on their headline fixed offers. ANZ's two-year fixed is around 6.04 percent, Westpac's two-year sits at roughly 6.34 percent, and Commonwealth Bank's two-year with its package discount applied lands at about 6.34 percent. Three-year terms generally sit a touch higher again, with the spread between the four majors typically inside thirty basis points. Standard variable rates at the same banks sit considerably higher on paper — Commonwealth Bank's reference variable, for example, is just above eight percent — but the discounted variables that new and switching borrowers actually pay can be a percentage point or more below the headline fixed offers.

That gap is the crux of the trade-off. On the sharp end of the market, variable rates from competitive non-major lenders start in the high-fives, while the cheapest big-four fixed rates start in the low-sixes. A borrower who fixes today is, in many cases, paying a premium over the lowest variable available simply for the certainty that the payment won't move.

The fixed-rate cliff that hasn't ended

Part of the reason intent to fix is rising in 2026 is timing. Approximately thirty-eight percent of Australian mortgages currently on fixed terms are due to roll off in the next twelve months, according to broker industry estimates. Many of those borrowers fixed during 2021 at rates between two and three percent. Even a fresh variable in the high-fives, let alone a new fixed in the low-sixes, represents a step-up of more than three full percentage points on the same loan.

For a household with five hundred thousand dollars outstanding on a thirty-year principal-and-interest loan, the difference between a 2.5 percent rate and a 6.0 percent rate is in the order of one thousand dollars a month in repayments. The choice for these borrowers isn't really fixed versus variable; it's how to absorb the largest cost-of-living adjustment of the cycle.

What it means for you

For new buyers and refinancers, the calculus comes down to four practical questions.

The first is rate certainty against rate optionality. Fixing protects against further hikes but locks out the benefit of any cuts later in the cycle. With the Reserve Bank still describing inflation as persistent, the immediate balance of risks favours certainty — but cycles turn, and the locked-out cuts can be real money over a two- or three-year term.

The second is features. Variable loans typically come with offset accounts, redraw, and the ability to make unlimited extra repayments without penalty. Fixed loans usually restrict additional repayments and rarely offer a fully featured offset. For borrowers with savings sitting against the mortgage, that feature gap can quietly outweigh the headline rate difference.

The third is exit cost. Breaking a fixed loan early — to sell, refinance, or restructure — can trigger an economic cost that runs into thousands of dollars. Variable loans can usually be exited or refinanced for a few hundred dollars in discharge fees.

The fourth is the split option. Most lenders allow part of a loan to be fixed and the rest left variable. A fifty-fifty split is the most common configuration. It dilutes both the upside and the downside of either pure option and is increasingly the path of least regret for borrowers who can't decide.

Outlook

Whether the May 2026 hike is the last of the cycle or the first of three more depends on data the Reserve Bank itself has not yet seen. Markets are currently priced for at most one further increase, with cuts again on the table by 2027. For borrowers, the planning horizon is shorter than that, and the choice in front of them is sharper. The data says variable wins; sentiment says fix. The next twelve months will decide who was right.

Key takeaways

• The RBA cash rate is back at 4.35% after three consecutive hikes in February, March and May 2026, reversing the 2025 easing cycle.
• Fewer than 2% of new home loans are being written on fixed terms, but more than one in three borrowers say they plan to fix in 2026.
• Sub-6% fixed rates have nearly vanished — the number of lenders advertising one fell from 83 to 29 between January and April.
• The choice now hinges less on headline rate and more on features, exit costs, and how much repayment certainty the household actually needs.
• A 50/50 split between fixed and variable is the most common configuration for borrowers who can't decide.