4.35% Is the Peak. So Should You Fix Your Rate Now — or Wait for Cuts?

With today's CPI data in, bank economists are unanimous: 4.35% is the cash rate peak, and the next move is a cut — probably in the first half of 2027. The question is no longer whether rates will fall. It's when — and whether you're better off locking in a fixed rate now, or riding variable down when they do.

This article walks through the current numbers, the scenarios, and the practical trade-offs.

Where Rates Actually Stand Right Now

The gap between what most Australians are paying and what's available in the market is wider than most realise.

The first thing to notice: if you're on the average variable rate of 6.92%, neither the fixed question nor the RBA's next move is your most urgent issue. The gap between 6.92% and the best available variable is $482/month on a $600k loan. That's a refinancing decision, not a fixed vs variable decision.

If you're already on a competitive variable rate — or you're refinancing — the fixed vs variable question becomes more interesting. At the low end of the 2-year fixed range (5.80%), fixing costs approximately $43/month more than the best available variable. At the high end (6.10%), approximately $159/month more. Whether that premium is worth paying for certainty depends on your situation.

The Case for Fixing Now

Two-year fixed rates are priced below three-year terms, reflecting bond market expectations that the RBA will cut rates within the two-year window. You're not locking in today's cash rate of 4.35% forever — you're locking in a rate that already reflects where markets expect the cash rate to average over the next two years.

The scenario where fixing wins: If the first cut doesn't arrive until September 2027 (ANZ's forecast) or later, you spend roughly 13 months paying a fixed premium over best variable — but then cuts start flowing to variable while you sit on a known rate. Over 24 months, fixing is likely to come out ahead.

The scenario where fixing is close to neutral: If cuts start in May 2027 (CBA/NAB forecast), variable starts falling sooner. Over 24 months the maths tightens — but you've had certainty throughout and avoided any tail-risk exposure.

The tail-risk protection: Westpac has flagged November 2026 as a tail-risk hike scenario if September quarter CPI re-accelerates. This isn't their base case — but it's real. A fixed rate eliminates this scenario entirely. On a $600k loan, one unexpected hike would add approximately $95/month to a variable rate. Two would add approximately $190/month.

The Case for Staying Variable

Offset account access. This is the most underrated reason to stay variable. A full offset account reduces your effective interest rate dollar-for-dollar. If you have $50,000 in offset against a $600k loan, you're effectively paying interest on $550k — reducing your interest charge by roughly $237/month at 5.69%. Most fixed rate loans don't allow offset, or cap it at a low limit. If you have meaningful savings, the offset advantage narrows the variable/fixed gap significantly.

No break costs. If the RBA cuts faster than expected, or if your circumstances change — you sell, refinance again, or receive a windfall — a variable loan has no exit penalties. Breaking a fixed rate contract mid-term can cost thousands. The bank calculates what it loses on the rate differential for the remaining term, and passes that cost to you.

The scenario where variable wins: If cuts start earlier than mid-2027, or come faster (say, two cuts in 2027 totalling 50bp), your variable rate could fall to 5.19% or below before a 2-year fixed term expires. You'd finish 2027 paying less than the fixed rate you could have locked in today.

The Split Option

Some borrowers split the loan: fix a portion — say, 50–60% — and leave the rest variable with an offset account attached. This structure gives you:

The trade-off is complexity — two loan accounts, potentially two sets of fees, and a fixed portion that still carries break cost risk on the fixed component.

What Not to Do

Don't wait for the first cut to make this decision. When the RBA does cut, fixed rates will already have repriced — banks move fixed rates in anticipation of RBA moves, not after them. By the time a cut is officially announced, the window on the most competitive fixed terms will have narrowed. The borrowers who benefit most from fixing are those who act during the hold period, not after the first cut lands.

Don't confuse the loyalty rate with the market rate. If you haven't reviewed your rate in the last 12 months, the 6.92% average is the right starting point — not 5.69%. The fixed vs variable question is secondary to whether you're on a competitive rate at all. Getting to 5.69% first, then deciding whether to fix, is the right sequence.

Who Should Consider What

Sources: ABS, Consumer Price Index, Australia, June 2026; Finder, Variable Rate Home Loan Report (average existing borrower rate 6.92%); Mozo, Best Variable Home Loan Rates (competitive from 5.69%); Canstar, Fixed Rate Home Loan Comparison (2-year fixed from 5.80%); Westpac, August rate outlook update, 29 July 2026.