More than 80% of Australian home loans are on variable interest rates. That single statistic explains why every Reserve Bank of Australia decision lands with such force in this country — far more than in the United States, the UK, or most of Europe. When the RBA moves rates, the effect flows through to Australian households almost immediately. And right now, with the RBA holding at 4.10% and three of the four major banks forecasting a rate rise in May, borrowers on variable rates need to be paying close attention.
Why Australia Is So Variable-Rate Dominant
In most developed countries, borrowers fix their mortgage rate for long periods — often 15 to 30 years. In the United States, the 30-year fixed mortgage is the default product. In France and Germany, five to fifteen year fixed rates are standard. Australian borrowers, by contrast, have historically preferred variable rates, and the structure of our mortgage market has evolved around that preference.
There are a few reasons for this:
- Break costs: Australian fixed rate loans typically carry significant break fees if you pay the loan out or refinance early. Variable loans can be refinanced at any time for little or no cost, which suits a mobile workforce and a culture of refinancing frequently.
- Offset accounts and redraw: Most variable rate loans in Australia come with offset accounts and redraw facilities — features that are rarely available on fixed rate products. For borrowers who maintain a high balance in their offset, variable rates deliver significant tax-free interest savings.
- Bank pricing: Australian banks have historically priced fixed rates at a premium to variable — particularly when variable rates are falling — which made them less attractive to borrowers who expected rates to stay low or fall further.
- Cultural habits: Australian mortgage brokers and borrowers alike developed a preference for variable rate loans over decades of falling or stable interest rates, and that preference became entrenched.
The result is a mortgage market structurally different to most of the world — one where interest rate changes transmit directly and rapidly to household budgets. The RBA itself has noted this as a key feature of the Australian economy in its monetary policy communications.
What 2022–2023 Revealed About the Risk
Australia's heavy variable-rate exposure was largely invisible as a risk during the decade of falling rates from 2011 to 2022. When rates are falling or stable, being on a variable rate is an advantage — you benefit automatically without needing to refinance.
That changed dramatically in May 2022, when the RBA began one of the fastest rate-hiking cycles in its history. In just 18 months, the cash rate went from a record low of 0.10% to 4.35% — a rise of 4.25 percentage points. For a borrower with a $750,000 mortgage, that translated to roughly $2,000 in additional monthly repayments. For those with larger loans or investment properties, the hit was even harder.
Impact of Rate Rises on Monthly Repayments
| Loan Size | Monthly at 0.10% | Monthly at 4.35% | Monthly Increase |
|---|---|---|---|
| $500,000 | ~$1,880 | ~$2,720 | +$840 |
| $750,000 | ~$2,820 | ~$4,070 | +$1,250 |
| $1,000,000 | ~$3,760 | ~$5,430 | +$1,670 |
| $1,500,000 | ~$5,640 | ~$8,150 | +$2,510 |
Estimates based on 25-year P&I loan. Actual amounts vary by lender margin.
The RBA then cut rates in February 2026 — the first cut since COVID — bringing the cash rate down to 4.10%. Some borrowers took this as a sign that the hiking cycle was definitively over and that further cuts were coming. But the picture is more complicated than that.
Where Rates Are Now — and What May Could Bring
As of March 2026, the cash rate sits at 4.10%. The RBA meets on 17 March and all four major banks — ANZ, CBA, NAB, and Westpac — are forecasting a hold at that meeting. The language from RBA Governor Michele Bullock has been consistently cautious: "every meeting is live," meaning the board is not committing to any particular path.
The concern is May. Three of the four major banks are forecasting a rate rise to 4.35% at the May meeting, driven by:
- Sticky services inflation: While goods inflation has fallen sharply, services inflation — driven by wage growth, insurance, and housing costs — remains above the RBA's 2–3% target band.
- Strong labour market: Unemployment has remained lower than the RBA projected, reducing urgency to cut and keeping wage pressure elevated.
- Government spending: Federal and state infrastructure spending is adding to aggregate demand, partially offsetting the restrictive effect of high rates.
- Global uncertainty: US Federal Reserve policy, commodity prices, and geopolitical factors are all adding to uncertainty around the RBA's path.
If the RBA does hike in May, variable rate borrowers will feel it within weeks of the decision, as lenders pass through rate changes — usually in full and usually within a fortnight.
The Case for Fixing Right Now
Fixed rates in Australia are set by the banks based on wholesale funding costs and their expectations of where the cash rate will go. They are not simply the current cash rate plus a margin — they already price in future rate movements to some degree.
As of March 2026, some lenders are still offering 2-year fixed rates in the high 5% to low 6% range — above current standard variable rates (which typically sit in the mid-to-high 6% range with lender margins). On the face of it, fixing costs more today. But the comparison changes if the cash rate rises in May and again later in the year.
Fix vs. Variable: A Simple Comparison
| Feature | Fixed Rate | Variable Rate |
|---|---|---|
| Rate certainty | Yes — locked for term | No — moves with RBA |
| Offset account | Rarely available | Usually available |
| Extra repayments | Capped (typically $10K/yr) | Unlimited |
| Refinancing flexibility | Break costs may apply | Low or no exit cost |
| Benefits from rate cuts | No — rate is locked | Yes — automatic |
| Best for | Budget certainty, rising rate environment | Flexibility, offset savings, falling rates |
The strongest argument for fixing right now is budget certainty. If rates rise in May and possibly again later in 2026, a borrower who fixes at today's rates will have insulated themselves from those moves. For someone with a tight budget, a growing family, or significant lifestyle commitments, knowing your repayment won't change for the next two years has real value beyond the raw rate comparison.
The Case for Staying Variable
Staying variable is not simply the default or passive choice — it is a deliberate decision with a logic behind it.
You will benefit immediately if rates fall. If the May meeting results in a hold rather than a hike, and if subsequent meetings bring cuts, variable rate borrowers will see their repayments drop automatically. Anyone who fixes now locks in today's rate and misses that benefit.
Offset accounts are powerful. If you are holding meaningful savings in an offset account — say $50,000 or more against a $600,000 loan — the interest savings can be substantial. Fixed rates rarely come with full offset accounts. Losing your offset to fix your rate may not be worth it if you have significant liquid savings.
Flexibility matters. If there is a reasonable chance you will refinance, sell, or make significant extra repayments in the next two years, the break costs on a fixed rate loan could eliminate any benefit from fixing. Variable loans give you full flexibility at any time.
The Split Loan Strategy
Many Australian borrowers choose a middle path: splitting their loan between fixed and variable portions. A common approach is to fix 50–70% of the loan for certainty on the bulk of repayments, while keeping the remainder on variable so you retain an offset account and the ability to make extra repayments.
A split loan does not maximise either outcome — you will not benefit as much from rate cuts on the fixed portion, and you will not have full certainty if rates rise on the variable portion. But for many borrowers it offers a practical, balanced approach that reduces risk without completely sacrificing flexibility.
What Should You Do Before May?
The right answer depends on your individual circumstances — your loan balance, your savings in offset, your income stability, your plans for the property, and your appetite for uncertainty. What is universal is that this is a decision worth making consciously before May, rather than leaving on autopilot.
Questions to Ask Yourself Before May
- Could I absorb another rate rise? If a 0.25% hike adds $150–200 to your monthly repayments and that would be genuinely difficult to manage, fixing for certainty becomes more compelling.
- Do I have significant savings in offset? If yes, losing that offset to fix could cost more than the rate certainty saves. Run the numbers.
- Am I likely to sell or refinance in the next 2 years? If yes, break costs on a fixed rate loan may outweigh any benefit.
- What rate can I actually fix at? Not all lenders' fixed rates are the same. Some are significantly better than others — which is where a mortgage broker can add real value.
- Is my current rate competitive? Before deciding fix vs. variable, check whether your current variable rate is even competitive. If you are on an old rate and not paying attention, you may be overpaying regardless of what the RBA does.
Use our mortgage comparison calculator to model the difference between your current variable rate and a fixed option — including the impact of potential rate rises in May and beyond.
Sources: Reserve Bank of Australia (rba.gov.au); Australian Bureau of Statistics (abs.gov.au); ANZ, CBA, NAB, Westpac economic research; APRA (apra.gov.au); Australian Financial Review
Not Sure Whether to Fix or Stay Variable?
It's one of the most common questions we get — and the right answer is different for every borrower. We'll look at your current rate, your offset balance, your plans, and what's available in the market today to give you a clear recommendation.
Talk to Us Today