Every rate-rise cycle generates the same headline: "Should I fix?" The standard answer, repeated through 2024 and 2025, was: probably not, the rate gap is too narrow and the optionality of variable wins on a long horizon. With the May 2026 hike, the cash rate at 4.35 per cent, and another move priced for August, the answer is more nuanced. For a meaningful slice of borrowers, fixing for two years is the right call this month.
The fix-versus-float decision is not a forecast. It is an answer to a different question: how much are you willing to pay to know exactly what your repayment will be for the next two or three years? Below are the three borrower profiles that decide it differently.
Profile 1: Servicing-stressed, stable income
You can afford the current variable rate, but another 0.50 per cent of increase would push your monthly cashflow into the red. Your income is stable, you are not selling, and you do not expect a windfall in the next two years. For this profile, fixing two years usually wins. The fix premium on most lender panels is 0.20 to 0.40 per cent above the cheapest variable. On a $700,000 loan, that is $115 to $230 a month of extra payment in exchange for two years of zero exposure to further hikes. The cost is a known number; the upside is not having to refinance under stress if rates move another 0.50 per cent against you.
A common variant for this profile is to fix only the portion of the loan you would not be able to service at a higher variable rate, and keep the rest variable. The split ratio depends on your buffer.
Profile 2: Healthy buffer, irregular extra repayments
You can afford another 1 per cent of variable-rate increase comfortably. You receive bonuses, dividends, or tax refunds, and you tend to channel some of them into the loan. You have no firm view on rates from here. For this profile, variable usually wins. Fixed products typically cap or exclude extra repayments, and most do not include offset accounts. The compounding effect of a $20,000 lump-sum payment on a variable mortgage is significant; losing the ability to make it under a fix is usually worth more than the rate certainty.
The exception is if you are about to make a one-off payment that would bring you under 80 per cent loan-to-value. In that case, fix the post-payment balance for a year and lock in the structural drop in your rate.
Profile 3: Expecting to sell or refinance within two years
If there is any reasonable chance you will sell, refinance, or restructure the loan inside the fixed term, do not fix. Break costs can run into tens of thousands of dollars on a typical mortgage if rates move against your fix during the term. The asymmetric risk is large.
What about a split loan?
Split loans are the most common compromise: fix part of the balance for repayment certainty, keep part variable for flexibility. The right ratio is not a percentage; it is an answer to two questions. First, what is the minimum monthly repayment your household can absorb without changing lifestyle? Fix the portion of the loan that produces that minimum. Second, how much variable balance do you need to support extra repayments and offset over the next two years? Keep at least that much on variable.
Most splits we see are 50/50 by default. Most should not be. The right split is the one that matches the certainty your household actually needs to the optionality the rest of your finances actually use.
How to act this week
- Ask your lender for the indicative two-year and three-year fixed rates available to your loan-to-value ratio. Get them in writing.
- Ask the same lender for the rate they would offer a new customer at your LVR on a variable basic-and-package product. The gap between those two numbers is the fix premium for your specific loan.
- Ask the lender to put in writing the indicative break fee on a 0.50 per cent rate-fall scenario over the fixed term. This is your downside if you fix and need to break.
- Run the numbers in our refinance and repayment calculators. Decide on the household budget threshold that triggers a fix, before you have to make the decision under pressure.
Fixing is not a forecast. It is a contract for repayment certainty. With the cash rate at 4.35 per cent and the path of policy still pointing up, the price of that contract has changed. Whether the price is worth paying is a household-by-household answer, not a market-wide one.