Mortgage broker guides · Loan structure
Fixed vs variable: a decision framework, not a recommendation
Both structures have a place. The right answer depends on cash flow, savings discipline, life stage, and how much rate risk you can sleep through. Most experienced borrowers split — here is the framework practitioners actually use.
★Key takeaways
- ✓Variable wins on flexibility (uncapped extras, full offset, easy refinance) — fixed wins on certainty (locked repayment, easier to budget, no rate-rise stress).
- ✓The standard recommendation from experienced MFAA brokers: SPLIT the loan. Typical structure 50-70% variable + 30-50% fixed for 1-3 years.
- ✓April 2026 indicative rates: variable 5.79-6.04% P&I, 2-year fixed 5.94-6.20%, 3-year fixed 6.04-6.30%. Rates shift weekly — confirm with broker.
- ✓Break costs on fixed loans can be $1,000-$30,000+ depending on rate differential. Always ask lender for indicative break cost calc BEFORE refinancing.
- ✓Fixed loans usually lose offset and limit extra repayments to ~$10-30k/year. For borrowers with savings discipline, this hidden cost can exceed the rate saving.
Current rate context
April 2026 AU rate landscape
Indicative ranges from major lender public rate sheets, owner-occupier, P&I, LVR ≤ 80%. Broker-negotiated rates are typically 0.10-0.40% below advertised. Investor rates are ~0.20-0.30% higher than owner-occupier.
| Product | Indicative range (P&I, ≤80% LVR) | Notes |
|---|---|---|
| Standard variable | 5.79% – 6.04% | Lowest after broker discount + package fee waiver |
| 1-year fixed | 5.84% – 6.10% | Useful for hedging a known upcoming event (sale, payout) |
| 2-year fixed | 5.94% – 6.20% | Most common fix term — balance of certainty + flexibility |
| 3-year fixed | 6.04% – 6.30% | Mainstream certainty option — break cost risk rises with term |
| 5-year fixed | 6.14% – 6.40% | Rare, only at certain lenders, often used by overseas-bound borrowers |
| Investor variable | 6.04% – 6.34% | ~0.25% premium over owner-occupier |
RBA cash rate as at April 2026: confirm at rba.gov.au/statistics/cash-rate. Lender rates do not always move 1-for-1 with cash rate changes.
When fixed wins
Choose fixed if …
- Cash flow is tight. Single income, fixed budget, no buffer. Repayment certainty is worth more than chasing the lowest possible rate.
- You expect rates to rise. If your view is that the RBA is in a hiking cycle, fixing locks in today\'s rate for the term. Note: the market typically prices this in — fixed rates rise BEFORE the RBA acts.
- You want to budget exactly. Fixed repayment to the cent for 1-5 years. Easier financial planning, particularly for families on fixed teacher / nurse / public sector salaries.
- You have no spare cash to throw at the loan. If you cannot benefit from offset (no savings) or extra repayments (no surplus income), fixed gives you the same outcome as variable without the rate-rise risk.
- You are about to start parental leave or career break. Locking in repayment certainty BEFORE income drops is a defensive move.
When variable wins
Choose variable if …
- You have significant savings in offset. A $100k offset on a $500k loan effectively reduces your rate by ~1.2%. Fixed loans usually have no offset or capped offset — losing this can cost more than the headline fixed rate saving.
- You expect to receive a windfall. Bonus, inheritance, business sale, share vest. Variable lets you throw it all at the loan without break costs.
- You might sell in 1-3 years. Career relocation, family change, upgrading. Selling a fixed loan early triggers break costs (potentially tens of thousands).
- You expect rates to fall. If your view is the RBA will cut in the next 6-18 months, variable captures the saving immediately. Fixed locks you out.
- You actively manage your loan. Refinance every 12-24 months for a better rate / cashback. Fixed makes this expensive; variable makes it almost free.
The standard answer
Why most experienced borrowers split
A split loan combines a fixed portion (rate certainty for the bulk of the loan) with a variable portion (flexibility, offset, extras). It is the most common structure recommended by MFAA-member brokers for borrowers with stable income and savings discipline.
Conservative
30% / 70%
Variable / Fixed. Heavy rate certainty. Suits single-income, tight cash flow, risk-averse.
Balanced
60% / 40%
Variable / Fixed. The default recommendation. Variable absorbs extras + offset; fixed provides budgeting certainty on the bulk.
Aggressive
80% / 20%
Variable / Fixed. Suits high-income, large offset balance, dual-income with surplus cash. Small fixed slice as a partial hedge.
Worked example — $600k loan, 60/40 split
$360k variable at 5.89% (with offset of $80k) — effective rate ~4.97%. $240k fixed at 6.04% for 2 years — locked. Monthly repayment ~$3,650 vs straight variable ~$3,580. Cost of the fix: $70/month, $1,680/year. Insurance value: protection against 1-2% rate rise on $240k, worth ~$3,600/year if rates do rise. Risk-managed trade-off rather than a yield play.
Mechanics that matter
Offset, redraw, and break costs explained
Offset account
A transaction account linked to your loan. Balance offsets the loan principal for interest calculation. $50k offset on $500k loan: interest charged on $450k. Full flexibility — money is yours, not in the loan. Standard on variable loans, rare on fixed.
Redraw
Extra repayments you have made can be drawn back out via redraw. Money sits in the loan, not a separate account. Less flexible than offset (some lenders limit redraw frequency, lock during arrears). Available on most variable and some fixed loans (within extra repayment cap).
Break costs
Charged on fixed loans when you exit early. Formula: loan balance × rate differential × remaining years. $500k fixed at 6.5% for 3 years remaining, current 3-year is 5.0% — break cost ~$22,500. Always request indicative quote BEFORE refinancing or selling.
Decision shortcut
Three questions that decide for you
- Can you sleep through a 2% rate rise without changing your lifestyle? If no, fix at least 50% of the loan. If yes, variable-heavy is fine.
- Do you have $50k+ in savings sitting around? If yes, variable + offset almost always beats fixed on after-offset effective rate. If no, the offset advantage disappears and fixed becomes more competitive.
- Will you sell, refinance, or pay off in the next 3 years? If yes, stay variable (or fix max 1-2 years) — break costs will burn the fixed-rate saving. If no, longer fixed is viable.
Common questions
Fixed vs variable — common questions
Are fixed rates currently cheaper than variable?
As at April 2026, 1-3 year fixed rates are roughly 0.05-0.15% LOWER than the standard variable rate at most lenders, but the rate market has been volatile. Historical pattern: fixed is usually slightly lower than variable when the market expects rate cuts (lenders pre-price the cut), slightly higher when the market expects rises. Verify current rates with a broker — they shift weekly.
What is the longest term I can fix for in Australia?
Most major lenders offer fixed terms from 1 to 5 years. A handful of non-banks offer 7-year fixed. Longer-term fixed (10+ years like US 30-year fixed) does not exist in Australia. Reason: APRA and RBA macro-prudential settings, and the lack of a deep mortgage-backed securities market like the US, makes long-dated fixed-rate funding uneconomic for AU lenders.
Can I make extra repayments on a fixed loan?
Usually yes, but limited. Most lenders allow $10,000-$30,000 per year in extra repayments on fixed loans. Beyond that you trigger break costs. A few lenders allow uncapped extras on fixed (CBA Wealth, ME Bank in past). Variable loans have no extra repayment limit. If you expect a windfall (bonus, inheritance, business sale) during the fix period, split the loan so variable can absorb the extra payments without triggering break costs.
What are break costs and how big can they be?
Break costs are charged when you exit a fixed loan early (refinance, sell, pay off in full). They compensate the lender for the funding cost difference between your fixed rate and the current rate for the remaining term. Formula varies by lender but typically: outstanding balance × rate differential × remaining years. On a $500,000 fixed loan with 3 years remaining at 6.0% fixed when current 3-year rates are 4.5%, break cost can run $15,000-$25,000. Always ask the lender for an indicative break cost calculation BEFORE refinancing — many borrowers are surprised.
Does fixed mean no offset account?
Yes for most lenders. The few exceptions (CBA, Westpac, some non-banks) offer "partial offset" on fixed loans, typically capped at $50,000-$100,000 offset balance. Loss of offset is the biggest hidden cost of fixing — for borrowers with $50k+ sitting in offset on a $500k loan, the effective rate saving from offset (offset balance × variable rate) often exceeds the headline fixed rate saving. Run the numbers before assuming fixed is cheaper.
Should I fix part of my loan or all of it?
Most experienced borrowers split. Typical structure: 50-70% variable (with full offset + uncapped extras), 30-50% fixed for 1-3 years. Variable portion provides flexibility; fixed portion locks in the rate certainty for the bulk of repayments. As the fixed term expires, you can roll into variable (or re-fix at then-current rates) without breaking the whole loan. Splits are the standard recommendation from MFAA-member brokers for borrowers with stable income and savings discipline.
What happens at the end of a fixed term?
Your rate rolls automatically to the lender's standard variable rate, which is usually HIGHER than what you could negotiate. ALWAYS engage the lender (or a broker) 4-6 weeks before fixed expiry to: (a) negotiate a discount on the new variable rate, (b) consider re-fixing if rates have moved, (c) consider refinancing to a more competitive lender. Failing to act at roll-off is one of the most common reasons borrowers pay 0.5-1.0% above market.
Is variable risky in a rising rate cycle?
Risk is real but manageable. Variable repayments rose ~3% (e.g. $1,800/month on $500k) between May 2022 and November 2023 as the RBA hiked from 0.10% to 4.35%. Most borrowers absorbed this through reduced discretionary spending. The risk is asymmetric: if you cannot service a 2-3% rate rise without hardship, you either: (a) need a smaller loan, (b) need to fix some of the loan, (c) need to budget for the worst-case scenario. Run a "what if my rate was 8%?" stress test before deciding.