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April 11, 2026 — 5:10am
The thing about locking in your loan interest with a fixed rate is that by the time most people think about doing it, it’s already too late.
But that’s not to say it always works out financially worse – indeed, I came out way ahead with a half-fix on my first home loan (I’ll come back to this strategy). So, let’s model what would need to happen with official interest rates to make the current fixed rates work.
The way you win with a fixed rate is – of course – to end up making less in total repayments over the period of the fix than you would have if you had stayed on the variable rate. Let’s look at a pretty typical loan now: $700,000.
The best-of-breed standard variable rate since the two rate rises in February and March is about 5.8 per cent. Note that you will be able to get cheaper than this, but I consider best of breed to be loans with real offset accounts because – used correctly – these are enormously powerful debt-reduction tools.
(A real offset account is one that is separate and quarantined from the loan itself, so savings are both always accessible and also up to $250,000 are eligible for the Australian Government Deposit Guarantee. To check that an offset account is real, a loan needs to be backed by an authorised deposit-taking institution – there’s a list on APRA’s website.)
Now, you are unlikely to get a fix below a variable rate anywhere any more as lenders have for months been increasing them ahead of interest rate hikes.
Your ultimate advantage – or disadvantage – from a fix comes down to how quickly rates potentially go up, then potentially down.
But there is very little separating the most competitive variable rates and fixes right now over one and two years – remember your benchmark variable rate is about 5.8 per cent.
So, if rates go up even a smidge, and stay up, you might come out ahead by fixing. In fact, Finder tells me there’s a market-beating two-year fix of 5.49 per cent from Cairns Bank, up to an 80 per cent loan-to-value ratio.
But it’s over three years – a popular fixed rate term (and incidentally the longest I would entertain) – that things get interesting. Here, most fixes are slightly higher than variable rates – we will work on that variable of 5.8 per cent and a three-year fix of 6 per cent.
During that three years, the fix would cost you $162,360 while the variable would set you back $159,300 (25-year loan term) if rates remain the same. It’s, respectively, $4510 a month for the fix versus $4425 for the variable, initially.
But just one rate rise – on these interest rate deals – would see you go from behind $85 a month to ahead by $22 a month; two rate hikes would mean a saving that leaps to $129. The variable repayment would have lifted from $4425, to $4532, to $4639.
You’ll also have budgetary certainty, locked in at $4510, which is probably very appealing right now.
Of course, your ultimate advantage – or disadvantage – from a fix comes down to how quickly rates potentially go up, then potentially go down. It’s worth knowing that there’s also a baked-in disadvantage to a fix: often there’s no offset account, or if there is, it’s one that offers a substandard interest saving.
That’s logical as – by definition – you are committing to give a lender an agreed amount of interest and an offset account saves it. It’s also why exit penalties on fixes are punitive.
Which brings me full circle to the “half-fix”. This is as much as I ever advocate: 50 per cent fixed while retaining 50 per cent variable. It means you can get an interest saving from an offset account on the variable portion.
Also, you have a sensible hedge if rates, in fact, fall. Because betting against a bank with a fix is always a gamble. The practical problem of the half-fix is that rarely are the top variable rates and fixed rates offered by the same lender.
So, no matter what happens with interest rates from here, the cheapest half-fix is a matter of weighing the one that offers close to the best of both. So what is the likely direction of official interest rates? Well, up – at least in the short term.
If you act now, and fix quickly, you might come out ahead if they go up by just a bit and stay there; or, if they go up further than forecast. But you’ll be stuck if – and it’s a real prospect – the economy falters and rates are slashed to stimulate it.
Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at nicolessmartmoney.com. Follow her on Facebook, X and Instagram.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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