As borrowers contend with the most uncertain economic time since Covid, many are returning to the quandary of whether or not to go for a fixed rate home loan.
In this unpredictable economic climate, Australian borrowers are torn between two instincts: flexibility and certainty.
Those chasing flexibility are opting for variable loans; certainty seekers are choosing fixed rates — with plenty unsure what to do.
The Reserve Bank's third cash rate rise this year has pushed the cash rate to 4.35%, matching the 2024 peak, while inflation sits at 4.6%, its highest since 2023.
Google searches for "fixed rate loan" surged 250% in March compared to a year earlier, according to Commonwealth Bank analysis, typically spiking around RBA announcements — a sign that more borrowers are at least considering the switch.
Yet ongoing RBA research reveals fixed loans still account for only around 6% of new and outstanding home loans, up from roughly 2% in 2023/24, suggesting most are holding on to variable flexibility despite the pain.
It's a genuine dilemma. Variable loans move with the market — great when rates fall, bruising when they rise, but flexible enough to absorb extra repayments.
The Reserve Bank has raised the cash rate three times this year, undoing all of the easing from 2025. Picture: Hu Jingchen/Xinhua
Fixed loans offer predictable repayments for a set term, typically one to five years, before reverting to variable unless refixed. They can be a win if rates keep climbing but are costly if they fall.
'People don't know what to do'
Brisbane-based Mortgage Choice broker Laura Nadal says prior to recent rate hikes, borrowers assumed rates would fall so they stayed variable. Now, doubt has crept in.
"Our market's completely different now — this is undoubtedly the most uncertain time for borrowers since Covid."
Ms Nadal estimates around 30% of her clients are choosing to fix.
"They're tight and not willing to risk rate rises," she says. "They're securing their repayment so there's no surprises."
But the other 70% don't want to pay more to fix when the market could go either way. The International Monetary Fund is warning of a possible global recession if the Middle East conflict continues, which could ultimately force the RBA to cut rates.
"Some people just don't know what to do," Ms Nadal said.
With several banks and economists still foreseeing more cash rate rises in 2026, fixing now could shield borrowers from peak pain. But it comes with real trade-offs.
Mortgage Choice broker, Laura Nadal. Picture: Supplied
Here are some factors to consider.
~ Higher costs ~
Fixed home loan rates are typically higher than variable ones, as lenders build in a premium to hedge against future funding costs and potential RBA rate rise risks over the term, which makes them inherently less competitive than variable rates.
"Banks are foreseeing rate rises so they're not offering competitive fixed rates," said Ms Nadal. "Right now, they're about 0.5% above variable.
"This rate is unattractive for most clients who simply don't want to pay more each month."
~ Steep break costs ~
Exiting a fixed loan early is costly. Banks lock in funding at a set rate for the term, and break fees can be steep — spiking even higher when market rates have dropped since you fixed.
For this reason, borrowers should be prepared to ride out the term of the loan, says Ms Nadal.
"If you're planning on selling or moving during your fixed term, brace for expensive break costs."
And don't forget what happens at the end: when your fixed term expires and you revert to the variable rate, your rate could jump significantly.
Selling or moving house while on a fixed loan can prove challenging. Picture: Getty
~ Heavy restrictions ~
Variable loans let you make unlimited extra repayments, which is a straightforward way to clear your debt faster.
Fixed loans aren't nearly as flexible. Many lenders cap extra repayments at $10,000 per year, or between $10,000 and $30,000 over the life of the fixed term.
~ Few offset options ~
Most variable rate loans come with a 100% offset account, letting you reduce your mortgage interest (tax-free, unlike savings account earnings) while keeping your money accessible.
Fixed rate loans are a different story. Few lenders offer offset accounts on them, and when they do, there's usually a catch: either a partial offset — where only a portion of your savings, say 40%, counts toward reducing interest — or a hard cap, such as $20,000.
"Without an offset account, your savings sit in a regular savings account earning taxable interest, often at a lower rate than your mortgage, rather than tax-effectively reducing your mortgage interest," said Ms Nadal.
~ The split loan option ~
If you want both flexibility and certainty, a split-rate loan offers both — fixing a portion of your loan (say, 60%) for payment predictability while keeping the rest variable to access features like an offset account.
The key, says Ms Nadal, is to only fix what you're confident you won't pay off during the term.
"Don't fix all your loan if you're planning to make extra repayments or expecting a bonus."
She says a mortgage broker can help you work out the right split for your situation. But of course, break costs still apply to the fixed portion if you exit early.
A decision for later
Most of Ms Nadal's clients are staying variable for now, but that doesn't mean the door to fixing is closed.
"You can call up the bank and fix, say, 80% of your loan whenever you want," she said.
"But remember, fixed rates move independently of the RBA and fluctuate regularly, so the rate on offer when you decide to fix may look very different from when you first took out your loan."
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