Fixed rate vs variable home loans: which is better right now?
A fixed rate home loan (or fixed rate mortgage) locks your interest rate for a set term, usually one to five years, so your repayments don't change when rates move; a variable rate changes whenever your lender changes it. In August 2026 the RBA's average rate on new owner-occupier loans was 6.23% variable, 6.26% fixed for three years or less and 6.85% fixed for longer, and the RBA has since raised its cash rate target to 4.60% from 30 September 2026.
Neither is better for everyone. A fixed rate gives you certainty but usually limits extra repayments, rarely comes with an offset and can mean a break cost if you leave early; a variable rate keeps your flexibility. This page covers the current averages, how lenders set fixed rates, what each lender allows while you're fixed, how break costs are worked out and what to do when your fixed term ends.
By Better Rate Mate Editorial Team · Last reviewed
General information only. It doesn't take into account your objectives, financial situation or needs. Check the lender's key facts sheet, credit guide and TMD before you apply. We don't compare every lender, and we may earn a commission if you apply through our links.
Fixed and variable rates right now
The RBA's cash rate target is 4.60% from 30 September 2026. The RBA has raised it four times in 2026 (effective 4 February, 18 March, 6 May and 30 September) and held it in June and August; its next decision is due on 3 November 2026. Lenders price fixed rates off where they expect rates and their funding costs to go, so the spread between fixed and variable changes as expectations shift.
| Rate type | Average rate |
|---|---|
| Variable | 6.23% |
| Fixed for 3 years or less | 6.26% |
| Fixed for more than 3 years | 6.85% |
How lenders set fixed rates
Lenders price fixed rates off wholesale interest rates for the same term. The RBA says new fixed mortgage rates typically reference tenor-matched swap rates, and its explainer on the yield curve notes that a longer-term market rate reflects investors' expectations for the cash rate over that term, plus allowance for uncertainty. So fixed rates can move before the RBA does, as markets change their view of where the cash rate is heading.
Lenders then add a margin for their own funding costs, competition for borrowers and the risk of the loan, as they do for any lending rate. When you fix, the lender locks in its own funding to match: CommBank, for example, says it locks in its funding costs at a fixed rate in the wholesale money market for the same term on the same day. That arrangement is the reason break costs exist.
Pros and cons
Fixed: you know exactly what your repayments will be, which helps budgeting, and you're protected if rates rise. You won't benefit if rates fall, you may pay a break fee if you refinance, sell or pay the loan off early, and fixed loans often have fewer features.
Variable: you can usually make unlimited extra repayments, redraw and use an offset, and you benefit from rate cuts. Your repayments rise if rates rise, and your lender decides whether and by how much to pass on changes.
How much can you pay extra while fixed?
Lenders cap extra repayments on fixed loans, and exceeding the cap can trigger break costs or an adjustment. The limits differ a lot.
| Lender | Extra repayments while fixed | Fixed terms | Rate lock |
|---|---|---|---|
| Westpac | $30,000 in total over the fixed term | 1 to 5 years | Available, fee applies |
| NAB | Pay ahead up to $20,000 during the term | 1 to 5 years | Check with NAB |
| CommBank | Up to $10,000 per fixed year | 1 to 5 years | $750 |
| ING | Under $10,000 in any one-year period | 1 to 5 years | Check with ING |
| Macquarie | Up to $10,000 a year without break costs | Fixed rates on both its loans | Check with Macquarie |
| ME Bank | Up to $10,000 a year | 1 to 5 years | Check with ME |
| Bankwest | Up to $10,000 a year | Fixed terms available | Check with Bankwest |
| Suncorp Bank | Up to $500 a month | 1, 2, 3 or 5 years | Check with Suncorp |
| St.George | Check with St.George | Fix all or part | Capped at $1,000 (loans up to $2m) |
| ubank | Check with ubank | Flex Fixed | $500 |
| Athena | Check with Athena | 1 to 3 years | Check with Athena |
How break costs are worked out
If you pay off, refinance or change a fixed loan before the term ends, the lender can charge a break cost to recover its loss on the fixed funding it arranged for your loan. CommBank, which calls this an Early Repayment Adjustment, publishes its method: your current balance, multiplied by the time left on the fixed term, multiplied by the fall in the relevant swap rate since your term began, then reduced to today's value. It generally applies only if the swap rate has fallen since you fixed, and an administrative fee can apply even when there is no adjustment.
CommBank's own example: $387,208 owing with 3 years left, and the swap rate down from 5% to 3%. The simplified figure is $387,208 x 3 x 2% = $23,232.48, which becomes $21,504.91 after the present-value adjustment. That is CommBank's illustration, not a quote; swap rates change daily, so a break cost quote is only valid on the day it's issued. Other lenders use their own formulas, so ask yours for a written quote.
| Step | Figure |
|---|---|
| Balance owing | $387,208 |
| Fixed term remaining | 3 years |
| Swap rate when fixed vs now | 5% p.a. vs 3% p.a. (a 2% p.a. fall) |
| Simplified adjustment | $387,208 x 3 x 2% = $23,232.48 |
| After the present-value adjustment | $21,504.91, plus an administrative fee |
When your fixed rate ends: a 90-day checklist
At the end of the term the loan usually rolls to the lender's variable 'revert' rate, which can be well above its advertised variable rates. Comparison rates on fixed loans assume the loan reverts, which is why they're often much higher than the fixed rate itself. In the last three months of your fixed term:
- Ask your lender what the loan will revert to. CommBank, for example, moves it to the Standard Variable Rate for your loan purpose and repayment type, less any package discount, unless you choose a new fixed term.
- Ask your lender for its current fixed and variable offers for your loan, in writing.
- Get key facts sheets from other lenders for your loan amount. Refinancing when the fixed term ends avoids break costs; see refinancing your home loan.
- If you'll fix with a new lender, ask about a rate lock: without one, you get the fixed rate on the day of settlement, not the day you applied.
- Decide whether you want an offset account or unlimited extra repayments, which point to variable, or some certainty, which points to fixing part of the loan.
- Check what happens to extra repayments you made while fixed: CommBank, for example, only makes them available for redraw after the fixed term ends.
Split loans: part fixed, part variable
A split loan fixes part of your balance and leaves the rest variable, for example 50/50 or 20/80. You get some repayment certainty while keeping extra repayments and an offset on the variable part. Most major banks allow splits; Macquarie charges no fee to split; Suncorp requires at least $10,000 per split.
Should I fix for 2 or 5 years?
That depends on how long you need certainty and what the extra cost is. On the RBA's August 2026 averages, fixing for longer than three years cost about 0.6 percentage points more than a shorter fix. A longer fix also means longer exposure to break costs if you sell or refinance. If you might move, renovate or restructure within five years, a shorter fix or a split usually carries less risk. This is general information, not advice.
General information only. It doesn't take into account your objectives, financial situation or needs. Check the lender's key facts sheet, credit guide and TMD before you apply. We don't compare every lender, and we may earn a commission if you apply through our links.
What to watch for
- The revert rate at the end of the fixed term.
- Break costs if you might sell or refinance during the term.
- Extra repayment caps, especially if you expect a bonus or inheritance.
- Rate lock fees: without one, you get the fixed rate on the day of settlement, not the day you applied.
- Losing your offset when you fix.
Common questions
Is it better to take a fixed or variable loan?
Neither is better for everyone. Fix for repayment certainty if a rate rise would stretch your budget; stay variable for extra repayments, offset and the benefit of any rate cuts. A split loan gives you some of each.
Is it better to get a fixed or variable mortgage now?
On the RBA's August 2026 averages, new variable loans averaged 6.23%, fixed terms of up to three years 6.26% and longer fixed terms 6.85%. The cash rate target is 4.60% from 30 September 2026: the RBA has raised it four times in 2026 (effective 4 February, 18 March, 6 May and 30 September) and held it in June and August. What suits you depends on your budget and plans; this is general information, not advice.
Should I fix for 2 or 5 years?
Longer fixes currently cost more on average and carry break-cost risk for longer. Fix for five years only if you are confident you won't sell, refinance or need to repay large sums in that time.
Will mortgage rates drop to 3% again?
Nobody can say, and we don't forecast rates. The RBA's average rate on new owner-occupier variable loans was last below 3% between April 2020 and May 2022. See will mortgage rates drop to 3% again? for the RBA's figures and what it has said since its 29 September 2026 decision.
How are break costs calculated?
Each lender uses its own formula. CommBank's multiplies your balance by the time left on the fixed term and by the fall in the relevant swap rate since you fixed, then discounts it to today's value. If swap rates have risen, there's generally no adjustment, though a fee can still apply.
What happens when my fixed rate ends?
The loan usually moves to the lender's variable revert rate unless you choose a new fixed term or switch loans. Ask your lender for its revert rate in advance and compare it with the market.
Can I make extra repayments on a fixed loan?
Usually up to a cap. Westpac allows $30,000 over the fixed term, NAB $20,000 over the term, CommBank $10,000 per fixed year, ING and ME up to $10,000 a year, and Suncorp $500 a month.
About rates on this page
We don't quote lenders' interest rates: they change daily and with every RBA decision, and we don't have a live rate feed. The averages we quote are the RBA's published figures for the month shown. Always get the lender's key facts sheet, which shows the rate and comparison rate for your loan amount.