The RBA's February 2026 rate hike to 3.85% has reignited the biggest question in home loans: should you lock in a fixed rate for certainty, stay variable for flexibility, or split the difference? With markets pricing in the possibility of another hike by May, the stakes of this decision have never been higher. Here's a clear breakdown to help you decide.
Current Rates at a Glance (February 2026)
After all big four banks passed on the full 0.25% RBA hike, here's where rates currently sit:
Average Home Loan Rates - February 2026
| Rate Type | Average Rate | Lowest Available |
|---|---|---|
| Variable (owner-occupier, P&I) | 6.44% | ~5.49% |
| 1-year fixed | 6.30% | ~5.59% |
| 2-year fixed | 6.20% | ~5.49% |
| 3-year fixed | 6.25% | ~5.59% |
| 5-year fixed | 6.40% | ~5.79% |
Rates are indicative as of February 2026. A broker can find the best rate for your specific situation.
Fixed Rate: The Case For Certainty
A fixed rate locks your interest rate for a set period (typically 1-5 years). Your repayments stay the same regardless of what the RBA does.
Fixed Rate Pros
- Budget certainty: Your repayments won't change even if the RBA hikes again in May 2026
- Peace of mind: No anxiety watching the news every RBA meeting day
- Protection from further hikes: If rates go to 4.10% as NAB predicts, you're shielded
- Easier budgeting: Know exactly what you'll pay each month for 1-5 years
Fixed Rate Cons
- Break costs: Exiting early (selling, refinancing) can cost thousands in break fees
- No offset account: Most fixed loans don't offer a 100% offset facility
- Limited extra repayments: Typically capped at $10,000-$20,000 per year
- Miss out if rates fall: If the RBA eventually cuts rates, you're locked in at the higher rate
- Revert rate risk: When your fixed term ends, you may roll onto a much higher variable rate
Variable Rate: The Case For Flexibility
A variable rate moves up and down with the market. When the RBA changes rates, your lender typically adjusts your rate accordingly.
Variable Rate Pros
- Offset account access: Use an offset to reduce interest daily - potentially saving $100,000+ over the loan
- Unlimited extra repayments: Pay off your loan faster without penalties
- Redraw facility: Access extra repayments if you need cash in an emergency
- No break costs: Refinance or sell anytime without penalty
- Benefit from rate cuts: When rates eventually fall, your repayments drop automatically
Variable Rate Cons
- Rate hike exposure: Another 0.25% rise means ~$77/month more on a $500k loan
- Budget uncertainty: Repayments can change with little notice
- Stress factor: Every RBA meeting becomes a source of anxiety
- Lender discretion: Banks can raise variable rates independently of the RBA
Real Cost Comparison: $750,000 Loan
Let's see what happens to a $750,000 loan over 30 years under different rate scenarios:
Scenario Analysis - Monthly Repayments
| Scenario | Fixed (2yr @ 6.20%) | Variable (@ 6.44%) |
|---|---|---|
| Current repayment | $4,601 | $4,714 |
| If RBA hikes +0.25% (May 2026) | $4,601 (no change) | $4,829 (+$115) |
| If RBA hikes +0.50% total | $4,601 (no change) | $4,946 (+$232) |
| If RBA cuts -0.50% (late 2027) | $4,601 (locked in) | $4,487 (-$227) |
The Smart Middle Ground: Split Loans
Can't decide? A split loan lets you have the best of both worlds. You divide your loan into a fixed portion and a variable portion.
Popular Split Strategies
- 50/50 split: Half fixed for certainty, half variable for offset access - the balanced approach
- 70% fixed / 30% variable: Maximise certainty while keeping some flexibility for extra repayments
- 30% fixed / 70% variable: Maximise offset benefits while hedging against one more rate hike
Split Loan Example: $750,000
With a 50/50 split on a $750,000 loan:
- $375,000 fixed at 6.20% for 2 years = $2,300/month (protected from hikes)
- $375,000 variable at 6.44% = $2,357/month (with full offset access)
- Total: $4,657/month with partial protection and full offset on the variable portion
Which One Is Right for You?
Choose Fixed If:
- You're on a tight budget and can't absorb another rate rise
- You sleep better knowing exactly what you'll pay
- You don't have significant savings to put in an offset account
- You believe rates will rise further before they fall
- You won't need to sell or refinance in the next 2-3 years
Choose Variable If:
- You have a financial buffer to absorb potential rate rises
- You have (or plan to build) significant offset savings
- You want to make extra repayments to pay off your loan faster
- You may sell or refinance within the next few years
- You believe rates will stabilise or fall soon
Choose a Split Loan If:
- You want some certainty but don't want to give up offset access entirely
- You're unsure which way rates will go (most people right now)
- You have moderate offset savings
What the Experts Are Saying
Most economists are predicting at most one more rate increase in 2026. ANZ and CBA expect rates to stay at 3.85% for the rest of the year, while NAB forecasts a possible 0.25% rise in May, taking the cash rate to 4.10%.
This means locking in a 2-year fixed rate could protect you from one more potential hike, while still allowing you to refinance to a lower rate if cuts come in 2027.
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